Some Observations On The Debate Over Health Care And Insurance, Part I

Part One in a series of observations about health care and health insurance in light of the introduction of the House GOP's health care plan.


With the introduction of the House Republican’s proposed plan to replace the Affordable Care Act, which has been roundly criticized by health care pundits, medical care providers, Democrats, and many conservative Republicans, it appears we’re headed back into the same kind of debate over health care and health insurance that we saw between 2009 and 2010 when Congress was debating, drafting, and passing what ultimately became the Affordable Care Act. Toward that end, I’ve been doing some thinking of my own on the issue, especially on the extent to which my own views on the issue have evolved over the years. Initially, the inspiration for what follows here started in a discussion in the comment thread on a friend’s Facebook wall but it quickly became far too detailed for social media, so I decided to put everything into a blog post. I quickly found, though, that one post was far too insufficient to address the issues I wanted to touch on. As it stands now addressing all of the points I wanted to make would result in an unreasonably long post. As a result, what follows is the first part of what will be a multi-part series addressing just a few points I think are important in this debate.

The purpose of these posts is to raise issues, but not necessarily to find solutions. For one thing, I’m not nearly enough of an expert in health care policy to deign to propose a grand design for something that takes up one-sixth of the American economy. For another, I’ve come to realize that the solutions aren’t nearly as simplistic as either the conservatives who would argue that making the health care industry as free market based as a grocery store or the liberals who think that simply handing over the whole thing to the government via a Medicare for all single-payer system would have us believe. The purpose of these posts, then, is the perhaps naive hope that they’ll help spur some real debate about how we got where we are, what the problems with health care and insurance are today, and how we might be able to fix them in a way that will control costs, maintain the kind personal care that Americans clearly prefer (i.e., the kind of concern that led President Obama to say that under the PPACA ‘if you like your doctor, you can keep your doctor’), and ensure that medical care continues to improve American health and living standards well into the future.

1) The health insurance system became unwieldy and unsustainable when it went from being something that people expected would only cover “major medical” expenses to one that covered everything.

There was a time in the past when health insurance didn’t cover nearly every conceivable medical procedure, every doctor’s visit, and every prescription that someone would receive from a doctor even for something as simple as a mild case of bronchitis that developed from the common cold. It wasn’t that long ago, really, back when health insurance was called “major medical” and it was largely intended to recover major medical expenses such as hospital visits, surgery, and non-routine diagnostic tests such as X-Rays. In those days, routine doctor visits, and common prescriptions were generally not covered by insurance and patients typically paid for these things out-of-pocket. In some cases, they could be reimbursed after a deductible was satisfied, but in order for that to happen the patient would be responsible for reporting a claim to the insurance company and supplying the appropriate documentation, such as a bill from a physician’s office. In many cases, though, there was no reimbursement and the patient alone would be solely responsible for the charges, and as far as the doctor’s office was concerned they were.

At some point along the way, that began to change significantly. More and more, insurance started covering more routine procedures and individual patients become personally responsible for less and less of their medical expenses. To some extent, this occurred due to the decision in the years after World War II to tie health insurance to employment and to make the premiums that employers paid for such insurance tax deductible. This gave employers the incentive to substitute improvements in health care coverage, which were ostensibly just a benefit of employment, a substitute for higher wages by willingly paying for insurance that covered more and more medical procedures and took more and more discretion about health care spending out of the hands of consumers. The result is that, under our current system which, despite the existence of Medicare and Medicaid and the Affordable Care Act, is one in which by and large most medical expenses are covered by private health insurance companies and most Americans are wholly unaware of the prices charged for even the most routine medical procedures and have no incentive to price shop for procedures that are covered by insurance.

The result of this evolution of the health insurance system is, inevitably, what happens whenever pricing is no longer relevant to consumers, namely that prices increase without any real connection to reality. I wrote about this issue as far back as six years ago:

For most people with health insurance, a visit to the doctor typically ends up costing no more than a small co-payment. For other medical services, some people are responsible for a typically small deductible when using insurance to pay for tests, procedures, and prescriptions. Larger charges only tend to arise when, for some reason, an individual ends up receiving care from an institution or physician that isn’t part of the insurance network, although with most large insurance networks like Blue Cross/Blue Shield that seems to be much less of an issue than it used to be. For the typical person in a typical year, though, there’s almost no thought given to the cost of a medical procedure (why not go to the doctor for those sniffles when it only costs you a $10 co-pay?).


When consumers are insulated from the cost of a good or service, they aren’t going to take the price of that good or service into account when deciding whether or not to purchase it, which means that the normal supply-demand price mechanism isn’t going to work. In the long run, this means prices will go up. Of course, it’s true that health care itself is a good that isn’t necessarily subject to the same market prices as, say, groceries. We all want to live forever, and when we’re sick we want to feel better. Nonetheless, when someone else is paying the bill and, as the chart above shows right now someone else (the government and private insurance) is paying 88% of the bill on average, consumers have every incentive to use as much health care as they can.

This remains true today, and it’s one of the main reasons why health care cost increases continue to outpace inflation at an astronomical level. By contrast, one need only look at those areas of medical practice that generally aren’t covered by insurance. One prominent example of this is laser eye surgery, which is still not covered by most policies except perhaps in extreme cases. Despite that fact, or maybe because of it, the cost of laser eye surgery has declined even as the procedure become more advanced thanks to better technology and additional knowledge that has made it possible to improve the procedures that doctors use in the procedure. Granted, this hasn’t necessarily happened for all procedures that aren’t usually covered by insurance (see e.g., in-vitro fertilization and fertility clinic services), but it is a good example of how price shopping can impact medical service pricing positively. Any good reform to our medical care/insurance system should seek to introduce some elements of the old system back into the system and give physicians the incentive to be more open and more flexible when it comes to what they charge for routine visits and procedures.

2) Health care costs expanded rapidly due to new technology and new drugs.

The third-party payer issue isn’t the only reason that health care costs have increased, of course. Another major factor driving up costs has been the increased used of technology in medical care and the development of new drugs to treat conditions that may have been considered untreatable in the past. On the whole, of course, this is a good thing but it means that medical care, and in turn health insurance, will become more expensive in response. For the most part, I think we can say this is a fair trade-off since it is this technology that has made it possible for people to survive conditions such as cancer that they otherwise might not have survived in the past. At the same time, though, we ought to be careful about several things that make these benefits more expensive than they arguably need to be. This is especially true with regard to prescription drugs, where the patent laws are such that pharmaceutical companies are often able to extend their monopoly power over a drug for far longer than the law intended by finding some new use for it. As a result of that, generic drug manufacturers are handicapped in their ability to compete and consumers (or their insurers, who simply pass the cost along in the form of higher premiums) end up paying artificially higher prices for a longer period than the patent law ever intended. If we’re going to address health care costs seriously, we ought to address this issue in a way that can both allow pharmaceutical companies to receive the intended benefit of their patentable discoveries and let consumers benefit from more competition after a reasonable amount of time in which the manufacturer has their patent monopoly.

3) People are living longer and surviving things that used to kill people like cancer, heart attacks, and strokes.

The fact that technology, better drugs, and better medical care have led to people living longer and surviving conditions that otherwise would have been fatal is, of course, a good thing and one of the things we can be most proud of notwithstanding the many problems our health care system has. It’s worth remembering, though, that this development does come with costs of all it’s own and that those costs need to be covered. Whether its the advanced surgery that prevents an arterial blockage from becoming a heart attack, the drugs that led to remission of cancers that used to be fatal, or the new options in recovery that allow people who have had serious medical problems return to something resembling a normal life, it all costs money and that has to be paid for somehow.  As with the issues surrounding the rise of more technology in medicine, I’m not sure there’s a solution here outside of the kind of patent reform I spoke about above, but it’s worth recognizing the costs of an improved medical care system that can deal with complex problem far easier than it used to.

In addition to this, of course, is the fact that we’re living longer and that means that we’re encountering diseases and conditions that weren’t very common in the past. Longer life spans mean we’re dealing a lot more with end-of-life medical care for conditions such as Alzheimers Disease, which can end up being incredibly expensive. Additionally, end-of-life care can be particularly expensive, especially for cancer patients or elderly patients living in nursing homes and assisted living facilities where they require a significant amount of medical attention but little prospect of returning to a “normal” life. In some cases, this end-of-life care ends up being more harm than good in that it needlessly extends suffering for people who have no reasonable expectation of recovery but are nonetheless forced to suffer through the final stages of life rather than being given the option of dying with dignity, an option currently only available in California and Oregon. Obviously, we want to treat people humanely and comprehensively even at the end of life, but perhaps we need to be asking ourselves if we aren’t being too cruel in the process. After all, we don’t let our pets suffer in their final days, why do we force the people we love to do so?

I’ll end the post here and address remaining points in Part Two, which should come in the next day or two, but which I may hold back on posting until Monday.

FILED UNDER: Congress, Economics and Business, Health Care, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook


  1. Lit3Bolt says:

    Don’t forget the AMA’s role in resisting changes in how doctors are trained and licensed in the US, keeping the supply of professional medical care artificially low in order to keep their own wages high.

  2. grumpy realist says:

    Several points to add to your analysis:

    1) even if we consumers wanted to know what the price of an operation for something routine would be, we wouldn’t be able to find out. Because the hospital wouldn’t tell us. (Also, the random bills you get hit with because whoops, it turns out that your anesthesiologist is out of network AND NO ONE BOTHERED TO TELL YOU is another complicating factor.)

    2) Patent Law on pharmaceuticals. Um, you can get a new patent on an old medication if it’s for a new use. You are NOT getting a patent on the pharmaceutical itself; but on the new use of the pharmaceutical. And if you think that what we have now is awful, take a look at the way the system created ultra-long effective patent lifetimes on drugs before the Hatch-Waxman Act was passed to allow for the jump-starting of generics. (Yes, it was passed 20 years ago and we’re still working the bugs out of it.)

    3) What we should really be doing is working on cutting down the cost of health care, fugghetabaht the insurance issue for right now. That’s a diversion.

  3. Moosebreath says:


    Your point 1 misses a significant part of the history. Health insurers themselves wanted to have routine doctor’s visits covered, as chronic diseases would be found at an earlier stage, removing the need for more expensive treatments if they were not found until they have become more dire.

  4. Tony W says:

    I look forward to part 2. You dismiss “Medicare for all” people such as myself as overly simplistic. I do agree that Medicare would have to be a bit different (maternity/well-baby care is not prevalent among the AARP crowd) but the concept would be the same. It’s the best way to spread the risk pool across the entire (legal citizen) population and spread the cost accordingly.

    This plan also reduces the pricing power of providers, while preventing a ton of the costs involved in filing and collecting on insurance claims. Many insurance plans, for example, routinely reject every submitted expense – they do so as a delay tactic. Some percentage of those are never resubmitted so that’s pure profit. Medicare for all gets rid of those games and lowers costs for providers.

    There is still plenty of room for a supplemental insurance market, and employers are welcome to jump into that as a benefit if they choose. The difference is that the private insurers would have their risk capped.

    There is probably some risk of corruption among Medicare officials – but probably not much more than there is today. Medicare fraud is more common than election fraud, but still managable through law enforcement

  5. Pch101 says:

    In the US, supply is constrained because we require doctors to do just about everything, instead of allowing less costly nurse practitioners and pharmacists to do more of the work.

    The US system fails to create a large unified pool that could reduce the cost of care by buying in bulk. Instead, we provide providers with ample opportunities to push their prices higher by dividing the pool into various tiers, many of which have little to negotiation power at all.

    The solution to the healthcare problem is fairly simple: Create a large pool and expand supply so that providers lose pricing power. It is possible to have multiple insurers that participate in administering, but they should administering services for a common pool.

    What interferes with this obvious answer is a political problem: We have a major political party that has no understanding of healthcare economics, which earnestly believes that tax credits, tax deductions and tax rate cuts are the answer to everything, even though is no evidence to support their position and plenty of evidence to refute it. But the Republicans have been trading in alternative facts for decades — just ask Joe McCarthy — so this is nothing new.

  6. Kari Q says:

    Of course, this completely neglects the fact that the overwhelming majority of the costs in the health care system come from serious conditions where the patient either cannot or is in no position to even consider the cost of the cost of treatment. As Chris Ladd wrote: As I lie unconscious under a bus, I am in no position to shop for the best provider of ambulance services at the most reasonable price.

    Similarly, when a person is diagnosed with advanced cancer, or suffers a heart attack, or experiences a similar medical emergency to being hit by a bus, it’s unrealistic to think that the patient is going to suddenly become a savvy healthy care consumer. They simply don’t have the time, energy, or mental focus to do so, no matter how smart, educated, and disciplined they may be. Comparing treatment for pancreatic cancer to laser eye surgery is inappropriate.

    I have noticed that people who have a strong drive to keep health care market based tend to forget this. They always seem to base their analysis on ‘normal’ or ‘typical’ interactions with doctors. Most health care spending comes from the extraordinary events, not checkups and treatment for minor illnesses.

    I assume you’re planning on discussing this later, Doug. But it seems to me that any discussion of health care that doesn’t take this as the foundation of the discussion is likely to go in the wrong direction.

  7. Gustopher says:

    1) The health insurance system became unwieldy and unsustainable when it went from being something that people expected would only cover “major medical” expenses to one that covered everything.

    When I was a wee lad, back in the 1970s, I remember going to the Blue Cross Blue Shield HMO, having the little card checked, and a copay paid. I know HMOs were a bit new at the time, but the theory was always that the little things helped prevent the big things from getting big, and that they were a lot less expensive to handle.

    But, was that experience really so bizarre and atypical? I have no memory of who paid for drugs or how much, but every office visit was covered.

    The bronchitises, sinus infections and weird rashes of the world are just a rounding error compared to the cancers and heart attacks.

    Health insurance costs went out of control when health care costs went out of control. The health insurers responded by raising rates, and working out every possible way to avoid paying.

  8. MarkedMan says:

    Doug, you make some good points and raise some important issues. And you may be surprised to learn that some of those issues are addressed in a serious way by the two acts we collectively call Obamacare. One of the things that tempts me to throw up my hands and walk away is how often people (I’m not including you here, Doug) say something to the effect that “forget about Obamacare, nothing matters until we address adverse incentives to over hospitalize or over medicate, or until we make sure clinicians are doing the very effective low cost best practices before they jump in with highly expensive options, or that we should deploy free market forces where ever possible to incentivize lower cost and more effective treatments.” Because all three of those things are a huge part of Obamacare and have had a big impact on things like the reduction of hospital acquired infections. Especially the deployment of market forces.

    Bottom line, all too many people in general and virtually 100% of Republican policy makers, bloviate to no end about how stupid everyone is and how the answers are so obvious without having even the most basic understanding of how the healthcare system operates or how Obamacare has changed the equation.

    And none of that has anything to do with insurance. But I fear the idiot Republicans will toss it down the toilet because they can’t be bothered to understand anything before they start ripping the wires out.

  9. Pch101 says:


    Health insurance costs went out of control when health care costs went out of control. The health insurers responded by raising rates, and working out every possible way to avoid paying.

    Insurers also responded by creating networks, which merely encourage providers to play insurers against each other and charge higher prices.

    In the US system, insurers ultimately work on behalf of the providers, not the insureds.

    Oddly enough, states have laws that prevent auto insurers from creating networks of repair shops, yet they fail to do this with health insurance. We care more about vehicle bodies than human ones.

  10. Just 'nutha ig'nint cracker says:

    “insurers ultimately work on behalf of the providers, not the insureds.”

    Exactly! And moreover, it is difficult to change that part of the equation because most insured don’t even pick the company that insures them. Or pay the premiums (or even know what they are), or, in many cases, choose the pharmacies that fill their prescriptions, or participate in many (or any at all) of the decision making processes related to their own care. The thing simply isn’t a market in any reasonable way. The people receiving the services aren’t really stakeholders in any meaningful way.

  11. steve says:

    #1 is not well constructed. You are making two arguments. First, that adding in all of the little stuff on top of major medical made costs go up. Second, that insurance insulates us from prices, so normal supply-demand doesn’t work. In order to get a better handle on this you need to look at how health care dollars are actually spent. 50% of people account for just 3% of spending. The top 5% of people account for 49% of health care spending. So, what really drives spending is care of chronic illnesses, think dialysis or Alzheimers, and major acute events, think bypass surgery or chemo. Those little things like doctor office visits aren’t a big driver of costs.

    Now, on the insurance argument, I don’t think many would disagree, but the problem is what alternative do we have? Most Americans have less than $1000 in savings. What 25 y/o couple has savings adequate to cover costs if they have premie twins? Just not happening, so we have insurance. You can try to mitigate this with deductibles, but if they are too high, then for many people you essentially don’t have insurance.

    Also, to address the issue of not letting in enough foreign doctors, I have no idea what that number should be. The US currently has a physician force where 25% are foreign born. Only the UK and Sweden have higher percentages at about 35% and 30% respectively (we aren’t counting Luxembourg). Most other countries are well below that. I think that we should be expanding the number of US residency training programs, but no one really wants to pay for those.


  12. Kari Q says:


    I agree with all you said, but would add that that couple with premie twins isn’t going to be calling around looking for the doctor and hospital with the lowest rates. They shouldn’t be expected to treat their babies’ lives like a market transaction. They won’t decide they are over utilizing the health care system and decide to use less.

  13. Sleeping Dog says:

    In this morning Times, John Kashich was bloviating about healthcare coverage, some points were wholly agreeable, partisanship regarding healthcare payment needs to end and others asinine, that there is a magical market solution to cost.

    Every first world country provides some sort of universal coverage where access, reimbursement and pricing is in someway subject to government control. Most of these countries provide a better level of care for the typical citizen than the US does, at a lower cost.

    Given the realities of how healthcare and healthcare coverage exists in the US, a UK or Canadian system is a non-starter, but why can’t we have a system that is like most of the European countries where government sets clear guidelines and allows some level of market based competition to deliver the services. Basic and critical care can be available to all and more comprehensive care can be had by those willing and able to spend some of their own money.

  14. An Interested Party says:

    Every first world country provides some sort of universal coverage where access, reimbursement and pricing is in someway subject to government control. Most of these countries provide a better level of care for the typical citizen than the US does, at a lower cost.

    Is such a system even possible to enact in this country? There seems to be so many forces arrayed against such a system here–entrenched special interests and the lobbyists and campaign cash that come with them, political ideologues who want the government to play little or no role in the health care system, etc….

  15. DrDaveT says:

    Three quick responses to your first installment, some of which others have already commented on:

    1. Preventive care is a net cost savings, not a cost. Big ticket items account for the overwhelming majority of costs, and avoiding even a small portion of them is a net win, even if you have to cover every minor cough and cold.

    2. Free market solutions don’t work for things that you can’t substitute out of, unless society is willing to let people do without them. You can’t substitute out of health care. There is no market equilibrium in which poor people don’t die of being poor. If you assert a moral objection to transfers of wealth to cover health care costs, you are asserting NO moral objection (or at least less objection) to just letting poor people die.

    3. As I have said repeatedly in other threads, public health is an infrastructure issue. America is more productive and prosperous overall when its people are healthy, in the same way that it is more productive and prosperous when its people are educated, and have access to transportation, and are drinking clean water. Anyone who argues that medical care should NOT be provided from taxpayer funds needs to explicitly argue why they think public health is less important than public education or sanitation or public streets. Or, I suppose, argue that education and sanitation and streets should not be free to the poor…

  16. Erik says:


    insurers ultimately work on behalf of the providers, not the insureds.

    What do you base this conclusion on?

  17. Erik says:


    In the US, supply is constrained because we require doctors to do just about everything, instead of allowing less costly nurse practitioners and pharmacists to do more of the work.

    what mechanism, if any, would you advocate for constraining the provision of medical care, or specific subsets of care, to people with specific competencies?

  18. Healthcare is not a matter of insurance, is a matter of public policy and to some extent, public safety. People with untreated diseases are health hazard to the whole society. That goes beyond having a safety net;

  19. David M says:

    1) The health insurance system became unwieldy and unsustainable when it went from being something that people expected would only cover “major medical” expenses to one that covered everything.

    In some ways this probably isn’t accurate anymore, as more and more plans have significant deductibles now. And to whatever extent this isn’t universally true, even people that have low deductibles now, a decent number of them probably have the option of choosing a different plan with higher deductibles.

  20. Ben Wolf says:

    @steve: Certainly we should expand training; the limited number of available slots forces a lot of U.S. born stufents to train abroad and return to the U.S. for their residency requirements. The best way to receive more immediate relief to doctor shortages is to negotiate standards so foreign doctors can meet residency requirements in their native countries and then relocate to the U.S. A 1:1 ratio of foreign to native M.D.s is not out of the question under those circumstances.

  21. JohnMcC says:

    Would make an uncharacteristically (for me) short comment that your third point ‘we live so long, have chronic diseases and still are kept alive by expensive invasive medical care’ (I paraphrase, of course) was addressed in the debate over the ACA. We all remember “death panels”.

  22. Dave Schuler says:


    Health care costs expanded rapidly due to new technology and new drugs.

    I think that needs to be quantified. Drugs actually account for a rather small percentage of total healthcare costs so increases in drug costs can’t be driving the increase in total healthcare costs. If the increase in the cost were due to purchases of equipment and expensive consumables, hospital capital budgets and expense budgets would be rising. They aren’t.

    What actually has happened is that payrolls have risen. As a head of the Mayo Clinic put it once, “Too many people making too much money.” That didn’t just happen seven years ago or 20 years ago. It happened 50 years ago when wages in the healthcare sector started accelerating because we were throwing money at it.

    Check Uwe Reinhardt’s paper “It’s the Prices, Stupid”.

  23. Dave Schuler says:

    With respect to the issue of internationally-trained medical professionals, why hasn’t the number of physicians we’re training in the U. S. risen proportionally to the increase in the population over the period of the last 60 years?

  24. Dave Schuler says:

    I would be remiss in not mentioning that a major bottleneck in medical education is that the Medicare system pays around $80,000 for each and every medical resident and the number for which it pays is capped.

    We should immediately raise the cap. While we’re doing so we should ask ourselves how the present system, in which hospitals won’t increase the number medical residents unless they receive a whopping subsidy, came to be? There were no such subsidies 60 years ago. What changed? I strongly suspect that the high cost of medical education is, at least in part, a consequence of the subsidy rather than a response to the increased cost of medical education.

  25. al-Ameda says:


    insurers ultimately work on behalf of the providers, not the insureds.

    What do you base this conclusion on?

    It’s reality-based.
    Most working Americans get their individual, spouse, or family health insurance coverage through their employers (aka ‘providers’). The only way (short of going to a single-payer based system) that we’re going to effect significant changes in the current system is if providers form coalitions and leverage market strength to extract the kind of transparency, care-redesign, accountability and savings on behalf of their employees (aka ‘insureds’).

    Personally, I favor a single-payer model based on Switzerland’s: there is a tax funded nationally legislated comprehensive health insurance plan that every citizen purchases (voucher based) on the private market, and profit to the insurance companies is regulated. Anyone may also purchase excess or catastrophic insurance too. Healthcare costs are significantly less on a per capita basis in Switzerland than in America.

  26. MarkedMan says:

    A very, very large expense in the US system is the administation of insurance itself. Anyone who tells you that it is less than 30% of the cost of private health care is full of crap. (Medicare and Medicaid require an order of magnitude less effort because of the comparatively well defined and well understood coverage and payment rules). Two proofs for that statement: in the first year of Obamacare a number of insurance companies were hit by a clause that said anything over 30% administration charges had to be refunded directly to the enrollees. Billions of dollars were refunded directly to people (who almost universally did not realize it was an Obamacare benefit) before the companies figured out how to reclassify administrative costs. Think about that for a moment. 30% and it doesn’t include any administrative expenses at the hospitals, the doctors, the pharmacists, the MRI center and on and on.

    That’s the second proof. Next time you are in the doctor or the pharmacy, count the number of people who are administrative vs. those providing care. All those people have salary, vacation and benefits. They require floor space, utilities, office equipment, computers, etc. and understand that those administrato’s are on the phone arguing over which plan covers what treatment, what medication and how much. Stand in line at the pharmacy and listen as they explain the ins and outs of coverage to each person.

    There are over half a million direct employees for private health insurance in the US. But if we add all these other administrative employees in, how much would that be?

  27. MarkedMan says:


    employers (aka ‘providers’)

    FWIW, the way industry refers to the various actors:
    Providers = Hospitals, pharmacies, clinics, doctors offices, etc
    Clinicians = the doctors, nurses and technicians
    Payers = Medicare, Medicaid, VA and Private insurers (technically, private citizens who pay should fall in here but they have no voice)
    Patients = anyone who incurs a bill in the medical system. You don’t have to be sick or injured to be a patient
    Sponsors (?) = employers and other entities that choose plans (there may be other names for these, but I personally never had to deal with or factor them into valuing a project, so they weren’t discussed much)

  28. steve says:

    “While we’re doing so we should ask ourselves how the present system, in which hospitals won’t increase the number medical residents unless they receive a whopping subsidy, came to be?”

    I don’t know how they paid residents 60-70 years ago (though not that many did residencies so it was not such a problem I am thinking). What I know for the present is that training residents is expensive and time consuming. I don’t want to have anything to do with it. Just finding the time to work with and teach medical students is difficult enough.

    I am curious why you consider it a subsidy. If it takes more time, more money and more people to train residents than it would to just do the work with staff, why is this a subsidy?


  29. Dave Schuler says:


    Because it’s the definition of a subsidy. If the market doesn’t produce an outcome and the government pays to produce an outcome, that’s a subsidy.

    Here’s a formal definition:

    A subsidy is a benefit given by the government to groups or individuals, usually in the form of a cash payment or a tax reduction. The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public.

  30. DrDaveT says:


    what mechanism, if any, would you advocate for constraining the provision of medical care, or specific subsets of care, to people with specific competencies?

    That’s a reasonable question. You don’t want the 19th-century free market system, in which anyone who wants to can claim to be a physician. On the other hand, you don’t want a guild system in which the physicians’ guild can artificially suppress the supply of talent (e.g. by gold-plating qualification standards for specific roles) in order to keep individual compensation for guild members high.

    The solution would seem to be having a disinterested paternalistic third party, rather than a private guild with a financial stake, that establishes and enforces the standards for competence and decides what level of training is appropriate for various roles and actions. The only plausible candidate for that third party is a government agency, which freaks out Republicans who have been trained from an early age that “the government” is necessarily the enemy of the people.

  31. Erik says:

    @MarkedMan: @al-Ameda:

    Thank you. If that is what Pch101 meant by “provider” then the comment makes more sense. I agree with MarkedMan, though, that “provider” generally is understood at least how he defines it by those in the industry, and even then those that are working in direct patient care rather than in the government/healthcare interface would probably define it closer to his definition of “clinician.” I.e. a “provider” is the person you see with the MD/DO/APRN/PA degree. Hence my confusion.

  32. Tyrell says:

    In the 1980’s the era of the HMO’s began. People got insurance through work that had a wide range of coverage and was cheap. Deductibles and co-pays were either low or none at all. A lot of people started going to the doctor for a lot of reasons that they used to stay home for : coughs, colds, a 99 degree temperature, sore throats, and various minor aches and pains. So there was a lot of prescribing: antibiotics and pain medication – which have now come back to haunt us. It was the “fast food” of the health care industry. Then the HMO’s started losing money having to pay for all of these treatments, tests, and medicating. They started raising premiums at ever more rates. First it was like 5% a year, then 15%, then 30% and so on. Many of the companies got out of it. I remember that at my employer we had about 6-8 choices of companies. Then it got down to 2, then 1 (BCBS). At that time the two highest paid CEO’s were the heads of an HMO and the head of Disney: a lesson there in itself.
    Strangely, I can come out better on some things by not going through insurance: $4 cash a month compared to $12 through insurance for my prescription. Around here I can visit most specialists and come out better by self pay: $60 vs. $90 if I run it through insurance.
    Bracket fever is here, no doubt about it: no cure, it can only be controlled !

    Interesting article: “Managed Health Care (A Good Idea Gone Wrong)” (Burton Report, March 2017)

  33. Erik says:


    Both points are, essentially, the crux of the problem which prompted my question, and I agree with you on both counts.

    The Dunning-Kruger effect is very strong in medicine. “You can’t make the diagnosis you don’t think of” is true, and far too often (even accounting for the St. Elsewhere effect) less well trained clinicians miss important diagnoses because they are uncommon and thus out of the scope of their knowledge base or experience. Yes, even a non-medical mom or dad can handle diagnosing and treating a cold, but the problem is recognizing when cold-like symptoms stem from something more serious than a rhinovirus infection.

    So we need some sort of rubric that gets patients into the office of an appropriately qualified clinician, and is also rapidly self correcting when the initial assignment is wrong.

  34. steve says:

    a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.”

    Dave- If I have to run a residency I don’t want assistance to keep the cost low, I want the costs actually paid for. It is not the case that I would be making an inadequate profit, I would not be making money at all. Since I don’t want to do it, they better pay well.


  35. ColoradoDude says:

    It would be lovely if people would quantify and source their claims in these comments. (I often thought “Is that true?’ as I read them.)

    In Colorado the government department that handles Medicaid, CHIPs etc. went — in just 10 years — from consuming 20% of the state’s operating budget to 33.6%. That growth meant our highways have crumbled, road congestion has soared and most ‘minor’ state operations are crippled. (Source: Joint Budget Committee, “Budget in Brief” for relevant years)
    Last year’s ballot had an initiative to create a new massive tax base for universal care in Colorado; 2/3 of Colorado voters turned thumbs down on it. People don’t want to pay, in taxes or copays or deductibles, for health care. They want it free … for them.

    Has similar spending on health care crippled your state too?

    When I looked at the non-profits who were spending millions to support the passage of Obamacare, I found one back east that was almost 100% funded by health insurers, major hospital chains, and big group practices. Almost no money came from people who wouldn’t see their gross revenues or salaries grow due to the new law.

    I noted that Aetna has come out in favor of the Ryan Obamacare replacement bill. Coincidence? (Source: IRS, non-profit forms reporting income and expenditures)

  36. DrDaveT says:


    If I have to run a residency

    A serious question, since I don’t know the answer — who is requiring you to run a residency if you don’t want to? I had vaguely assumed that residency was just a part of training (some of) your employees, and if you didn’t need to do it you wouldn’t. If you’re training someone else’s employees, then THEY should pay the costs, directly or indirectly.

    This is not snark; I clearly need to learn more about how the residency system currently works.

  37. DrDaveT says:

    @Erik:We seem to agree on several major points here, but let me pick on one tangent:

    less well trained clinicians miss important diagnoses because they are uncommon

    This is true, but:
    1. It is getting less true as major advances in data analytics make it possible for systems like Watson (and others) to provide extremely good decision support for diagnosis and drug selection. Even well-trained clinicians cannot possibly keep track of the volume of new information coming out every day — but these systems can.
    2. It is unreasonable to set the bar at zero errors. We all want perfect medicine and perfect policing and perfect food safety and perfect automotive safety and so forth, but the cost difference between the 95% solution and the 99% solution is an order of magnitude. All effective public health systems recognize this, and explicitly choose not to try for perfection.
    3. The medical services that have the most benefit to society overall, in terms of both improving public health and reducing costs, tend to be the easy and inexpensive ones that pretty much any caregiver can handle.

    My personal take is that an 80% solution that society can afford is better — for almost everyone — than a 90% solution that only the wealthy have full access to. I say that as a wealthy person who really does not want to contract tuberculosis and really does not want to pay for the long-term medical bills of 100 million people who spent years with untreated diabetes, coronary artery disease, and no vaccinations.

  38. Erik says:


    The residency system has many facets, but I’ll try to address it just in relation to your question. The short answer to “who would make you run a residency” is “no one does,” so then why would anyone run a residency? First, residencies need to be accredited by the ACGME, so residencies need to be established by institutions, usually hospitals, but for some primary care specialties it might be a robust outpatient oriented system in partnership with a hospital. The accreditation hoops are substantial so it isn’t like a corporate training program where you open seats when you need more of some type of worker, and then hold off on offering that training again until the need re-arrises. To stay accredited, the program needs to train residents continuously. Although it is not unusual for residency graduates to stay in the area they graduate from, and some will stay and keep working in the same hospital they attended for residency, most will get jobs elsewhere. Residencies do not train primarily to create new employees for themselves.

    Possible answers for “why do it then” range from ultra-altruistic “we just want to see people learn and pay it forward to the next generation of physicians” to the ultra-cynical “residents are cheap labor,” and the full answer is probably a complex blend of all of the reasons. There are people who genuinely enjoy teaching, of course, and choose to work with a residency because they find that teaching fulfilling. There are prestige factors involved with associating with certain residency programs that are highly regarded, too. In this way it is not much different than answering the question “why would you want to be a college professor?” Residencies are typically associated with research opportunities, so if that is your interest you might need to work with residents to get the side benefit of access to research facilities. On the cynical end, since the government subsidizes resident pay, attending physicians teaching in residencies can benefit from having residents perform some of the work (clinical and research) that they would otherwise have to do without paying for that work. I’m not familiar enough with the specific economics of residency training to say how stipends compare to compensation packages, but I suppose it is even possible that the stipend exceeds compensation in some cases, allowing the residency to pocket the excess (likely justified as an offset for the cost of administrating the program). Residents can also be assigned the less pleasant tasks.

    If you’re training someone else’s employees, then THEY should pay the costs, directly or indirectly.

    In a real sense, residencies *are* training someone else’s employees, and “they” (really “we”) *are* paying the costs indirectly via tax supported subsidies to the programs.

  39. Pch101 says:


    Misdiagnoses are inevitable. Doctors will (rightly) presume that most symptoms reflect a common problem that is typical; it takes time for doctors to rule out the normal and look for the exceptional. Patients will fail to disclose information that would have reduced the odds of being misdiagnosed, and so on.

    The US system isn’t less or more prone to it anyone else, and there is no tradeoff between the payments system and diagnostic accuracy. If anything, a system that uses nurse practitioners and pharmacists as the first line of defense could be more accurate, since that would involve another set of eyes that sees and treats the patient more quickly and cheaply than is the case now.

    One of their functions would be to provide a form of triage, as they should know when they have hit the limits of their job function. No system that relies upon pharmacists to address basic issues that can be fixed with medication is expecting those pharmacists to perform surgery or remove tumors.

  40. Erik says:

    I am in substantial agreement with all of your points. In the spirt of your tangent, however, I’m going to push on some of them in a vaguely devil’s advocate sort of way and hope that the ongoing conversation will make both of us sharper advocates for the positions we share.

    1. I agree with your points about the value of experts systems and limits of human knowledge, but the deployment of these decision support tools is not yet sufficiently robust at the bedside to become reliant on them. Without ruling out the possibility of a sufficiently advanced Star Trek type AI eventually eliminating the need for human clinicians altogether, currently there is still a need for a human to evaluate the output of the decision support tool relative to the actual clinical situation and then act on that assessment. Currently the decision support mechanisms built into most electronic medical record systems are actually producing the opposite problem: alarm fatigue. There are so many obviously wrong warnings and recommendations that most people simply click through to dismiss them. It’s like having an inbox full of spam with one, or maybe no, emails you actually care about that you have to open dozens of times throughout the day. I am confident that the systems will get better, but they have a long way to go. Additionally, the use of the expert system interfaces has substantially eroded the sense of connection between clinicians and patients (I could going on in this vein, but I’ll step down off the soapbox instead)

    2. Yes, we will never get to zero errors. How closely to attempt this is entirely a policy question, and one that I suspect could only be answered semi-objectively, and then only on a population basis vs individual patient basis, via behavioral economic modeling that I find fascinating but don’t understand well enough to comment on. I will say, however, that one of the great challenges of discussing this topic with clinicians is that almost none of them can think in population terms without conscious effort, and even then rather poorly. That is not how they are trained to think. It is very difficult to see a patient that might benefit from an intervention and not offer it because, on a population basis, that intervention is not appropriate. Hence the problem with over prescription of antibiotics. No clinician worth anything is going to think “well, that’s just my xx% expected failure rate” when a patient has a suboptimal outcome (actually in some cases clinicians suicide over failures, so this is not trivial). Even more difficult is that no patients will be willing to say that either when they or a loved one is on the receiving end of that failure rate. So in theory that is good, but in practice everyone using the system expects zero errors, even though they might accept a lower bar for the population as a whole.

  41. DrDaveT says:

    @Erik: We continue to agree violently, but like you I am enjoying the conversation.

    Another point that occurred to me after my last reply was that hospitals currently need to overcharge the patients who can pay in order to subsidize their legal requirement to treat the indigent. A moment’s thought will make it clear that this is the least efficient possible way to implement a universal coverage mandate — not only does it encourage the indigent to let chronic conditions fester until they become acute (and expensive), it also makes it all but impossible to identify what the costs of care really are. Oh, and it helps drive the general inflation in healthcare prices (as opposed to costs) in the paying market for healthcare.

    I would argue that, in any arena where society has determined that universal provision is necessary, that is a prima facie case for establishing a public utility. We do it with schools, the electrical grid, road networks, water treatment, telephone, radio, television, cable/internet, national defense, police, fire, emergency response, etc. Many of those are much more “luxury services” than healthcare, by any measure. It is an accident of history that we don’t think of healthcare as being as much a basic civil requirement as telephone service (!) is. If we think healthcare at some basic level should be universal, we should implement a system that provides that basic care directly and efficiently, with known managed costs and direct reimbursement of the providers.

    On the specific responses:

    1. Agreed — badly deployed premature AI can make it impossible to get the eventual good AI accepted. I have been much encouraged by what I have seen recently, but getting it out into the world and widely used will not be without challenges.

    2. You are exactly right about the psychology of limited care. People do not become doctors in order to maximize the overall societal benefit of the care provided nationwide; they become doctors to treat individuals. Whether that be driven by the altruism of a Dr. Schweitzer or the ego of a Dr. House, the effect is the same — to want to do whatever it takes for this patient right here in front of me, whether that makes economic sense or not.

    What people aren’t willing to admit is that care is always limited — by resources if nothing else. Choosing to “not ration care” is really choosing to ration care by wealth, instead of by any criteria related to social value or economic utility. Anyone who objects to the decision process mischaracterized as “death panels” is actively asserting that only the rich deserve good care.

  42. Just 'nutha ig'nint cracker says:

    @Ben Wolf:

    The best way to receive more immediate relief to doctor shortages is

    Is it just my imagination, or does that statement beg the question of whether the AMA–the resident guild for our doctors–believes that a shortage of doctors even exists? I don’t believe that the AMA is permitting foreign doctors to come to the US because of a shortage, rather it is a win-win situation for hospitals/HMO systems who want to hire at lower wages and doctors who can make more money here than in the Philippines or wherever.

    It’s not just about altruism and serving the community anymore.

  43. Just 'nutha ig'nint cracker says:

    @Tyrell: You’re very lucky. In the places that I have lived in the PNW clinics charge full fees to people with no insurance so that when I didn’t have insurance, my office visit was $120 compared to the $10 copay and $65 that the insurer paid to my doctor–or in this case, physician’s assistant.

  44. MarkedMan says:


    It is getting less true as major advances in data analytics make it possible for systems like Watson (and others) to provide extremely good decision support for diagnosis and drug selection.

    I think long term you are right but IBM found medical tougher than they expected for Watson and have shifted effort to other areas, at least for now. It was a big focus early on, and I actually entered into some preliminary discussions with them for a potential project. A number of roadblocks appeaed but here are a few big ones: Liability – if the system can be said to be making clinical decisions, then they become liable for anything that goes wrong. Registration – if the system rises to the level of a medical device it must be registered, and the indications for use must be proven for every disease state and, since their goal is EVERY disease state, it’s a huge, perhaps impossible undertaking. Information overload – even the drug incompatibility algorithms the pharmacies advertise produce way too many possibilities (one clinician told me it was useless for his elderly patients who took so many drugs that it would spit out many pages for everything he prescribed). And that’s just for drugs, Watson would be worse. And if IBM were to try to filter that, they would become liable for making a clinical decision. So the default would be to kick out reams of documents for every patient.

  45. Gustopher says:

    @Tyrell: I think you may be looking at two things that happened at the same time, but getting the causal relationship wrong.

    HMOs started getting popular in the 1970s and 1980s, and consumer health care costs started rising at the same time. But, health care costs had been rising before that, and HMOs were seen as a way of reducing the total cost — rising health care prices led to HMOs, not the other way around.

    Whether HMOs controlled costs as they were expected is another issue. People don’t like being pushed into HMO plans where they have to see their PCP before a specialist — the PCP may say you don’t need a specialist, or it becomes just another hurdle to jump through — so they were never as popular, and they got a different set of patients. (I like an HMO, since I want a single doctor overseeing my various health problems and say”your mystery rash has always come within a month of a sinus infection, and may be a histamine response — let’s work with the ENTto get a better plan for warding off sinus problems, and make a note to use antibiotic 2 instead of 1 in case that’s the problem”)

  46. Gustopher says:

    @Gustopher: also, the 1980s is when companies started pushing more of the increase in health care costs onto the employees — the costs were rising before then but people mostly didn’t see the increase, their employers did.

  47. Erik says:

    @Just ‘nutha ig’nint cracker:
    It is important to be clear that the AMA is not a guild, at least not in the sense that one would typically use the term. The AMA is, essentially, a lobbying organization. Membership in the AMA is *not* required to practice medicine, and actually relatively few physicians belong (and some vehemently disagree). It would probably be fewer still if they didn’t put out a good journal. AMA does not determine, other than indirectly via their membership on other boards and via lobbying, the number of foreign medical school graduates allowed to practice. Ultimately, that would be done, I would assume, via the visa process.

    The process for being licensed to practice medicine is governed, depending on your entry pathway, by an examination process (USMLE) established under the joint auspices of the Federation of State Medical Boards, American Board of Medical Specialties, Association of Medical Colleges, National Board of Medical Examiners, Educational Commission for Foreign Medical Graduates, and probably a bunch of other similar organizations. I’d be shocked if AMA didn’t have a seat on almost all of these boards and associations, since they are an effective lobby, but they aren’t calling all the shots.

  48. Erik says:


    Misdiagnoses are inevitable.

    Certainly. The question is: what is an acceptable rate, and, especially, is that a flat rate or does it vary by some criteria, such as severity of negative consequence for the misdiagnosis?

    Doctors will (rightly) presume that most symptoms reflect a common problem that is typical; it takes time for doctors to rule out the normal and look for the exceptional.

    It is true that physicians will generally start with the more common likely diagnosis for a given symptom complex, that’s just the availability heuristic. It is incorrect, however, to assume that they do not think of other less common diagnoses at the same time. It isn’t as if they simply pick the most common diagnosis consistent with the symptoms and go with that for a while, then try a different, less common one, if things don’t seem to be going well with treatment. A really good physician will entertain a substantial number of possible diagnoses, weighting their relative likelihood based, in part, on how common the diagnosis is, but also by a process of deliberately considering which features of the presentation tend to support or weaken the likelihood of each diagnosis. Although not formally Bayesian, of course, it is reminiscent of that type of analysis. Some physicians will deliberately attempt to “rule out,” at least provisionally, more serious diagnoses, even when they are uncommon, before settling on a less fearful, but more common, diagnosis to begin treatment.

    If anything, a system that uses nurse practitioners and pharmacists as the first line of defense could be more accurate, since that would involve another set of eyes that sees and treats the patient more quickly and cheaply than is the case now.

    Just having more people look at a problem does not automatically increase accuracy, especially if some of the people who look at it first are wrong, which is really the thing we are dealing with here since a correct diagnosis by definition would not need to be further checked and corrected by a physician. That error can actually easily bias follow-on observers resulting in perpetuation of the error.

    One of their functions would be to provide a form of triage, as they should know when they have hit the limits of their job function. No system that relies upon pharmacists to address basic issues that can be fixed with medication is expecting those pharmacists to perform surgery or remove tumors.

    You are right, they should know when they have hit the limits of their job function, and in the case of pharmacists performing surgery that line is bright. Unfortunately, most cases are not so straightforward, e.g. the primary care ARNP dealing with a patient with back pain. Even just picking up on the pharmacist example, few pharmacists would recommend surgery, or even consultation with a surgeon, for a symptom that fits a diagnosis that is treatable with medicine because they won’t know about that surgical diagnosis. They literally cannot consider it. As I said earlier, the Dunning-Kruger effect is especially strong in medicine. One of the substantial advantages of the much longer training process for physicians is the opportunity to learn about a vastly larger range of diagnoses, as well as learning more thoroughly the basic anatomy, physiology, and pathophysiology that helps one to recognize when a symptom doesn’t make sense or really fit the diagnoses one is considering. Essentially this breaks down Dunning-Kruger by helping one recognize when one doesn’t know. The point is that most people are terrible at recognizing when they have “hit the limit of their job function.”

  49. Erik says:

    All excellent points. I am particularly troubled by the ostrich approach we, as a society, are taking toward rationing care. By having no clear criteria, we simply allow that process to be haphazard and arbitrary, although I will freely admit that I am not wise or brave enough to propose a worthy model. Even coming up with some very general foundational principles that don’t require caveats and exceptions is challenging. There are striking parallels in that regard with the notion of a constructed moral system. Sadly, if that is the case, then our healthcare system doesn’t say very good things about our morality. Thank you very much for this discussion.

  50. Pch101 says:

    I find funny how Americans panic over stuff that has already been demonstrated to work in other places.

    France is one example of a nation that allows pharmacists who receive the appropriate training to prescribe drugs. It also has laws that require pharmacies to maintain schedules that ensure that every area has access to a pharmacy 24 hours per day.

    The result? Cheaper, faster, more convenient service. Quelle horreur…

    Do French pharmacists attempt to overshoot their pay grades by performing open heart surgery or treating trauma patients with severed limbs in the candy aisle? No, they would expect you to go to the doctor for that, just as you would.

    The pharmacist can do what a GP would do during an initial consult in many instances: Give you a drug for a short course of treatment. If that drug doesn’t work, then you can then visit a doctor, which is what you would have done anyway.

    However, the pharmacist will be able to help you sooner, more conveniently and at a lower price, which saves the system money AND increases the odds that you’ll deal with your condition because the process of seeking help has been improved. The pharmacist is not going to remove cancers or treat your diabetes or cut out your cataracts, but neither would most doctors in a world full of specialists.

  51. MarkedMan says:

    Can someone pull me out of spam jail?

  52. DrDaveT says:


    However, the pharmacist will be able to help you sooner, more conveniently and at a lower price, which saves the system money AND increases the odds that you’ll deal with your condition because the process of seeking help has been improved.

    Just in case it wasn’t clear, I agree with pretty much everything you’ve been saying in this thread. I get the impression that you feel like Erik or I has been pushing back against your positions, but that’s not how I read Erik and certainly not what I have been trying to say.

  53. Kari Q says:


    Here’s a source for the concentration of spending by a few people:

    Half of the population spends little or nothing on health care, while 5 percent of the population spends almost half of the total amount. In 2002, the 5 percent of the U.S. community (civilian noninstitutionalized) population that spent the most on health care accounted for 49 percent of overall U.S. health care spending

    Although it is over a decade old, it hasn’t changed. The study has been confirmed by later research and is often quoted.

    Going to the doctor for the sniffles is probably a waste of time and money, and getting antibiotics for a cold is definitely contributing to the rise of drug resistant infection. But it isn’t responsible for soaring health care costs.

  54. DrDaveT says:


    By having no clear criteria, we simply allow that process to be haphazard and arbitrary, although I will freely admit that I am not wise or brave enough to propose a worthy model.

    This seems to be the American way. We know we won’t be able to agree on what is most important to teach our kids, so we let each hilltop municipality decide for itself, with disastrous results. We know we won’t be able to agree on the best use of finite RF spectrum among commercial, public, and military needs, so hold absurd auctions that result in a worse allocation than any of the ones we might have planned. We know we won’t be able to agree on which medical conditions should be treated for all, so we provide universal care only in stupid and inefficient ways, with disastrous results.


  55. Bob@Youngstown says:

    Slightly off topic but: The quality and respectfulness of the above discussion is the principle reason that I lurk at (and recommend) OTB. Thank you Doug and commenters.

  56. Pch101 says:


    I was taking Erik to task for producing a bit of FUD when he works so hard to convince us that experts can’t be trusted because they are allegedly prone to failure.

    He’s taking the Dunning-Kruger shtick too far. We should not be surprised that medical personnel would be inclined to start by attributing symptoms to their most common causes. That’s not incompetent, that’s actually a wise thing to do because it usually makes sense to start with the obvious and then work through things if what may have seemed likely is later proven to be false.

    Of course, a trial-and-error approach will produce some errors early in the process. However, that produces fewer errors than the presumption that every case is a unique mystery and that it is necessary to start from zero.

    As you noted, there are costs associated with not providing care. Neglect is a far larger problem in the US system than misdiagnosis.