Bad Healthcare Cost Models Produce Silly Results (anyone surprised?)

Jul 22 2009 Published by under Bad Economics

This morning, my good friend Orac sent me a link to an interesting piece
of bad math. Orac is the guy who really motivated me to start blogging; I
jokingly call him my blogfather. He's also a really smart guy, not to mention
a genuinely nice one (at least for a transparent box of blinking lights). So
when he sends me a link that he thinks is up my alley, I take a look at
the first opportunity.

Today, he sent me a link to a guy who claims to have put together
a mathematical model showing that it's impossible to create a national
healthcare system without rationing. The argument is a great example
of what I always say about mathematical modeling: you can't just
put together a model and then accept its results: real mathematical models
must be validated. It's easy to put together something that looks
right, but which produces drastically wrong results.

The common way of saying it is "Garbage In, Garbage Out". I personally
don't like that way of describing it - because in the most convincing examples
of this, it looks like what's going in isn't garbage.

One way of looking at a mathematical model of something like healthcare is
as a dynamical system. Each point in the phase space of that system is
a possible situation. The model predicts how that will evolve over time. The
GIGO argument makes it sound like what matters is: which point do you choose
to describe today's situation? If you choose the right starting point, then
run it forward, you'll get the right end point. But the evolution function is
also important: if your evolution function doesn't accurately model how the real
world changes over time, then the end point will be wrong, no matter how perfectly
you selected the starting point.

The selection of the evolution function is a part of the modeling process. You can
(and probably should) view it as an input to the model - in which case GIGO is
absolutely right. But most people's intuitive understanding of GIGO doesn't do that.

Anyway... I'm getting positively Oracian here, babbling on this long without getting to
real point. (Except, of course, that I'm not doing it nearly as well as Orac. Anyone else think
it's unfair that a lucite box of blinking lights writes with more style and eloquence than me?).

The article is called There's Not Enough Waste and Inefficiency in Healthcare, by a guy who writes under the name "DrRich".

His model, as he describes it, is based on four assumptions. I'll tell you about them,
and then I'll try to explain both why the look right, and why they're actually completely wrong.
I'm not going to quote him precisely - I'm going to rephrase in a way that makes the
problem more obvious - but I recommend that you look at his original article to verify
that I'm not misrepresenting his argument.

  1. The proportion of healthcare spending that is wasteful is currently 25%.
  2. The annual rate of growth of healthcare spending is constant, and is
    approximately 10%.
  3. The annual growth rate of non-wasted healthcare spending is the same as the current
    inflation rate.
  4. The difference between the 10% growth rate and the non-wasted spending is
    wasteful spending.

He admits that the first point is a total wild-ass guess. And that's fine. No one is really
sure of what the correct number is, and for the sake of argument, a nice round number
like 25% is a reasonable starting point.

The second point is where things start to go awry. Health-care spending
growth isn't constant - and that should be completely obvious. The growth
in health-care spending has been absolutely ridiculous in recent times -
but it varies enormously, depending on economic conditions. Exactly how to
predict it is very uncertain - no one is really sure exactly which variables
influence it. But we know that there are lots of factors, which push and pull
the rate in different directions. For example, in bad times, people delay
treatments - which can decrease some costs. Bad economic conditions also
increase the incidence of many stress related disorders, which can increase
some costs. Health care spending is also affected by weather, by natural disasters,
by medical innovations, by the average age of the population, and by the size of the
population. Given all that uncertainty, there's one thing that's very clear: the
rate of increase of health-care spending is not constant, and its
relationship to the economic environment that surrounds
it is non-linear.

The third point is also not correct. It sounds
reasonable. In fact, if you measure health care spending
per capita, then in the long term, the increase in healthcare
spending per year must eventually level out at the rate of inflation. But
that's not what DrRich is saying. He's saying that the total
rate of increase of healthcare spending should match inflation. And
that's just wrong. In fact, it's totally ridiculous. Once again,
DrRich is trying to model things using a single-variable linear model
for something that is manifestly not a single-variable linear phenomenon. And
any attempt to validate that model, by comparing it to real observations
will make it abundantly clear that the model is total rubbish.

Ignore for the moment that healthcare spending per year is highly
variable and, likely, chaotic. After all, in the long term, the chaotic
factors should damp out. (You can see it as being very similar to weather:
short-term, it's chaotic. Long term, it can't be.) In the long-term, what
we should expect is that on average, the rate of increase of
non-wasteful medical care would, roughly, match the rate of
economic growth
in the economy, not the rate of inflation. That,
right there, is a major flaw. The population is, at the moment, constantly
increasing. That means that if health care prices stayed exactly the
same, total healthcare spending would increase every year, because
the number of people be treated increases. But by that same argument, the
economy should also grow because the number of productive workers increases
with the population. If you take a conservative model of health-care spending
increasing at a rate based on just inflation plus population growth,
but you claim that the rate of non-wasteful healthcare spending grows with
inflation, then you'll wind up with a picture where the percentage of
healthcare spending that is going to waste/inefficiency is increasing,
without bound, every year. In fact, you'll find that in fairly short order,
it's pretty much 100% of cost-growth.

And - surprise! That's exactly what DrRich's model shows. From
that, he concludes that the rate of growth in healthcare spending
cannot be blamed on waste.

The evolution function that he chose for measuring the portion of
increase in healthcare spending that's wasteful is totally bogus. And so,
even if the numbers that he puts into his model are absolutely, 100%
correct, his conclusions can't be.

How much of health-care growth is really due to waste? I don't
know. I haven't sat down and tried to model it. But the experience
of numerous other countries, using a variety of public, private, or
hybrid universal insurance systems without experiencing the kind of
cost-growth that we see in the US is a pretty good indicator that
it's not unmanageable. But again - I don't know. Someone
who knows more about health care spending than I do could put together
a model that tries to show how much is wasted, and what the rate of
growth of wasteful spending really is. But it's not an easy job. And
DrRich's silly linear model based on the rate of inflation is clearly
not the right model.

38 responses so far

  • Nomen Nescio says:

    a guy who claims to have put together a mathematical model showing that it's impossible to create a national healthcare system without rationing.

    of course that's impossible. you don't need a whole lot of math to show that; it follows trivially from the assumption (and a very reasonable one it is, too) that healthcare is an economically scarce good.
    so long as doctors' and nurses' time is a finite resource that is more in demand than we as a society can provide for, we'll always have to ration it somehow. we're rationing it right now, and we always have done so.
    viewed from one angle, we might say the whole debate is really just about whether or not the current rationing system (which more or less boils down to "those who can pay cash up front get the care") sucks badly enough to need replacing (i am in the camp who say it does) and what we ought to replace it with. but "no rationing at all" is not among the possible replacements, never has been, and never will be.

  • Mark C. Chu-Carroll says:

    Re #1:
    I don't know that I agree with you. I think it depends on how you define "rationing".
    From what I can see, it should be possible to provide basic medical care to everyone. So everyone can get regular checkups; everyone has access to care when they're sick; and everyone has access to life-saving medicine. I don't think that doctors and nurses are really scarce enough to make that impossible; nor do I think that the costs of providing that care is out of reach. (In fact, based on data from other countries, I think it's probably less than we spend right now.)
    Right now, we've got lots of silly stuff tacked on to our medical care system. For one extreme example, in the NYC area, there's a massively advertised service in Princeton that does a full-body high resolution CT scans for "indispensible executives". That's basically all they do. It's obscenely expensive, ridiculously time consuming, and almost entirely pointless. But the doctors who work there make a killing. And there's no shortage of businesspeople who think that they deserve that kind of care.
    The quantity of resources that go to providing that service is obscene - tens of thousands of dollars per patient, to do an unnecessary set of procedures on a healthy patient.
    It's entirely possible that a national healthcare system could make it difficult for services like that to survive, because they consume so much money. And preventing people from wasting insurance money on things like that is, arguably, rationing.
    There's also questions about the value of providing services of questionable benefit. For example, everything that I've seen from people that I trust seems to indicate that chronic lyme disease isn't really lyme disease, and that long-term IV antibiotics to eliminate the lyme bacteria therefore doesn't make sense. If someone really believes that they have chronic lyme, and that the long-term IV will cure them, and we deny it for lack of evidence to justify the cost, is that rationing? There are similar arguments for many other diseases - both diseases whose existence is questionable (morgellons), or diseases whose causes and treatment remain elusive (fibromyalgia for many patients), or treatments which don't have any real chance of working (like non-palliative chemotherapy for terminal cancer patients). If denying those is rationing, then rationing is inevitable.
    On the other hand, I absolutely agree that our *current* system rations health care. In fact, I find it difficult to see how anyone can, with any honesty, argue that it doesn't. I think that what DrRich really wants to argue isn't that rationing medical care is bad; but rather that rationing is inevitable, and that the current rationing system, where the best medical care is reserved for rich people, is the right one. And that's a view that I find morally repugnant.

  • Shanth says:

    Mark, I would agree with Nomen (#1) that rationing is inevitable, and the current system is rationing healthcare based on personal wealth. Here's a very interesting article by a bioethics professor on this question: http://www.nytimes.com/2009/07/19/magazine/19healthcare-t.html
    What strikes me as funny though, is the extent to which policy debates in the US hinge upon nomenclature and specific keywords such as "rationing", and "socialism". Any modern government which maintains public libraries, and museums other institutions at taxpayer expense, is to some degree "spreading the wealth". Similarly, it's just a question of degree as to what you consider basic healthcare, which unfortunately has to be couched in financial terms.

  • Tristan says:

    As people have said, any system is a system of rationing.
    What you have in the US today is (for the most part) a system of rationing based on whether you have a job with health care benefits, enough money or happen to be part of a group which benefits from state run schemes.
    What we have in the UK is rationing based upon time unless enough money to pay if you want to escape the queues. The standard of care is also lower (at least in my experience, and that of my wife), unless again you have the resources to pay for private care.
    The problem with the healthcare debate is that its about government intervention, or a different sort of government intervention. Both forms have massive disadvantages for the poor (and lesser for the rich). Nobody dares consider a free market health care system without the state regulating it at every turn.

  • Nomen Nescio says:

    i was using "rationing" in a sense i might have accidentally picked up from economists. (my apologies! the classes were a course requirement!)
    what i meant was that, if there were truly no limits on how much healthcare --- in terms of person-hours, or equipment cost, or whatever --- people could request and expect to receive, there would end up being more requested than could reasonably be provided. therefore there will always be some limits placed on what manner of procedures will be performed, although there's of course a huge and diverse set of methods we might use to set and enforce these limits.
    i'm in full agreement with you regarding what level of care should be made available to everyone, and (especially since i was born and raised in a country with a national healthcare system) i know for a fact it's financially possible to provide that. but any such system would also necessarily involve some scheme that would fall under "rationing" as i was using the word --- not everybody would be able to receive just any medical procedure imaginable on demand, because there couldn't be enough healthcare professionals in a functioning economy to provide that.
    still, i see no good reason we couldn't fashion a rationing system that would be much fairer, more efficient, more preventative, and almost certainly cheaper in dollars-and-cents terms than what we've got.
    oh, and Tristan --- the reason nobody seriously proposes complete deregulation of healthcare is that it couldn't possibly work. a laissez-faire free market is entirely the wrong solution for the problem domain, and it isn't even hard to figure out why. not everybody who needs healthcare has the time or ability to participate as an equal player in a market however free; not everybody who needs healthcare has access (even in theory) to the monetary resources needed to purchase it. little kids get cancer too, but even if they didn't, human lives and human health should not be run for other people's profit --- it's simply immoral to try.

  • jack lecou says:

    The problem with the healthcare debate is that its about government intervention, or a different sort of government intervention.
    That's a clever rhetorical trick there. It's like saying "the problem with the what-to-have-for-lunch-today debate is that it's about this one lump of organic matter, or this other lump of organic matter, and they both have disadvantages." Sure. Tossup. Lump vs. lump.
    Except, it turns out one of the "lumps" is a sandwich, and the other is a steaming pile of animal feces. The disadvantage of the one is that it's got a little too much mustard. The disadvantage of the other is that it's a steaming pile of feces.
    Similarly, the NHS and the US "system" both have their flaws, but that doesn't make them the same. For one thing, the NHS is rated higher by its users than the US system, and has very similar (or better) outcomes. Then there's the fact that the UK spends a fraction of what the US does per capita. Which makes it something like twice as efficient at delivering satisfaction and outcomes -- imagine the kind of system you'd have if you fund a well-managed NHS-style system at higher (but maybe not out-of-control US-style higher) levels...
    Nobody dares consider a free market health care system without the state regulating it at every turn.
    Sure. The "why not have a lump of mineral matter for lunch today instead?" option. Very sensible.
    It's not that nobody dares to consider it. Many smart people have considered it. Then they all rejected it for any number of sound moral and economic reasons.

  • Stephen Wells says:

    Yeah, the poor will make out like bandits under a totally free market health care system where all you need is money... oh hang on.

  • jack lecou says:

    On the other hand, I absolutely agree that our *current* system rations health care. In fact, I find it difficult to see how anyone can, with any honesty, argue that it doesn't. I think that what DrRich really wants to argue isn't that rationing medical care is bad; but rather that rationing is inevitable, and that the current rationing system, where the best medical care is reserved for rich people, is the right one. And that's a view that I find morally repugnant.
    Well said. And all too true.

  • Viking says:

    RE:#2
    "For one extreme example, in the NYC area, there's a massively advertised service in Princeton that does a full-body high resolution CT scans for "indispensible executives". That's basically all they do. It's obscenely expensive, ridiculously time consuming, and almost entirely pointless."
    As long as the individual receiving the scan is paying for it, I don't understand the problem. Health care is not a finite resource that needs to be divided up equally. More people can be trained, and more machines built. The use of the term "rationing" in this article is a bit misleading.
    "And there's no shortage of businesspeople who think that they deserve that kind of care."
    I don't think what kind of care they think they "deserve" has anything to with it. If they can afford it, who cares?
    "the current rationing system, where the best medical care is reserved for rich people, is the right one. And that's a view that I find morally repugnant."
    I think you are letting your disdain for the rich get in the way of the real issue here. Let them drive their BMW's, hire private doctors, and spend as much money on health care as they want. The morally repugnant part of our health care system is when poor people can't afford basic services, and are not getting adequate care. Let's fix the problems for those at the bottom instead of trying to tear down those at the top.

  • Mark C. Chu-Carroll says:

    Re #9:
    The issue is that they're not paying for it themselves. If they were, it would still be stupid, but it wouldn't be offensive.
    Many large companies buy special "executive" insurance, which pays for things like that. They're not paying for it themselves; they're giving it to themselves as a benefit, which they then include in the "health care insurance costs" for their companies.
    For example, take a look at the health care packages given to traders at the big financial firms, or the executives at GE. They don't get the same insurance as the lowly workers for their companies; they get packages that include ridiculous things like these pointless super-scans; and they use the cost of it to show how unreasonably expensive it is for the company to pay for insurance for their employees.

  • Alex, FCD says:

    For one extreme example, in the NYC area, there's a massively advertised service in Princeton that does a full-body high resolution CT scans for "indispensible executives". That's basically all they do. It's obscenely expensive, ridiculously time consuming, and almost entirely pointless.

    It's not almost entirely pointless, it's entirely entirely pointless. Radiologists are trained not to CT the thyroid of a healthy person, because you're almost certain to find something that looks weird. If you CT that same person's entire body, you'll find ten things that look weird.

  • DrRich says:

    Dr. CC:
    You say, "DrRich really wants to argue isn't that rationing medical care is bad; but rather that rationing is inevitable, and that the current rationing system, where the best medical care is reserved for rich people, is the right one. And that's a view that I find morally repugnant."
    This is an egregious misrepresentation of my view.
    The whole point of my blog is that current healthcare rationing, being covert, is highly destructive to patients, doctors, and society; and that as ugly and painful as it would be, working to find a way to do the unavoidable rationing openly and transparently would ultimately be better.
    I am also working on a reply to your original post on my bad math, and on my being a fool. I will let you know when I post it.
    Rich

  • Nomen Nescio says:

    current healthcare rationing, being covert,

    you seem to have a most odd definition of "covert".

  • Seth Manapio says:

    "I am also working on a reply to your original post on my bad math, and on my being a fool. I will let you know when I post it."
    In fairness, MCC never calls you a fool. He just says that you are wrong.

  • DrRich says:

    Dr. CC,
    I simply and naturally surmised from the tag line to this blog that purveyors of "bad math" are to be squashed as fools.
    In any case, here's my response:
    http://covertrationingblog.com/general-rationing-issues/and-now-drrich-must-defend-his-own-self
    Rich

  • Doug Little says:

    Oh, it seems that when you are wrong it is referred to as irony. Good to know!

  • Trisha says:

    Wow CC. Seems you left your sense of humor at the door, along with a little common sense?
    Seems you must have never really read that covertrationingblog.com post. It was drippingly facetious and you completely missed it.
    You'd be wise not to leap such a pointed fence to your faulty conclusions about that post. How painful to look so foolish! Oh. But I forgot. Programming code, your stock in trade, has no sense of humor. If it did, it wouldn't run. So how can you be held accountable?
    An apology for such a public skewering seems to be the least you can do.

  • Mark C. Chu-Carroll says:

    DrRich:
    So you're entire response is, basically "I was joking, and MarkCC was mean to me because he wanted to kiss up to Orac"?
    Really, that's the best you can do?

  • Mark C. Chu-Carroll says:

    Re #17:
    The argument that DrRich was "just joking" or "being ironic" or "drippingly facetious" just doesn't hold water. It reduces the DrRich's original post to an utterly pointless waste of time. It's trying to make an argument - not a joke. But the argument doesn't work. In fact, it's a damned stupid argument, for the reasons that I pointed out in the post above.
    And DrRich's response is even worse. While complaining about how I'm allegedly "ad-homineming" him by not referring to his proper credentials, he basically engages in an extended ad-hominem against me - basically saying that my argument shouldn't be taken seriously because I'm just kissing up to Orac, while studiously avoiding any of the substance of the argument.
    I actually suspect that DrRich doesn't really understand what ad-hominem means. Or at least, he thinks that his readers don't.
    Ad hominem is when you attack the person who presented the argument, rather than attacking the argument. DrRich makes a big deal about how I was using ad-hominem against him by referring to him as "some guy". That's as far as he can go with making the claim that my post was an ad-hominem.
    Then he completely ignores everything about my criticism, instead going off on an extended riff about how I didn't really have any thing to criticize, that I was just kissing up to Orac, etc. But he never actually manages to get around to the point that I actually did a fair presentation of his argument, and a detailed critique of what was wrong with it. No, none of that matters to DrRich.
    And now, I owe him an apology? I think not. If you look back at the history of this blog, one of the things that I'm quite proud about is that when I fuck up, I admit it. When I get something wrong, I admit that I got it wrong, and I correct it.
    But this time, I didn't get it wrong. DrRich put together a garbage argument about rationing. And now he wants to avoid taking responsibility for the fact that his argument was garbage.

  • Doug Little says:

    Assumptions 2 and 3 for me just don't jive well. As well as the points that Mark bought up I would think that if preventative care was part of the reform (which it is) this would tend to reduce expenditure over time.

  • I know it's complex mathematically, but isn't it also simple? Per capita spending on healthcare in the U.S. is a lot higher than other countries where there is lower infant mortality and higher life expectancy. Isn't that enough?

  • My experience has several data, including my son being born in a great Hospital in Pasadena, and me being the only American in the Delivery operating theatre; my (non U.S. citizen) wife's life being saved at that same hospital in a different year; my life being saved at that same hospital in yet another year-- and all these able to be paid off out of our salaries within 2 years after insurance paid plenty. Then I once had to be rushed to the Royal Infirmary in Edinburgh, Scotland, hand cut to the bone in a freak accident, and several experts worked on it while chatting lucidly about great poets and scientists of past centuries -- free of charge! "Oh, we would never charge you for this. You're a guest!"

  • MPL says:

    Here's my take on the situation:
    1) DrRich's model does not reflect reality
    2) DrRich knows the model does not reflect reality, he was trying to do a kind of reductio ab absurdum.
    3) DrRich does not realize that he is attacking a straw man. Nobody actually claims that all of the super-inflationary growth in health care spending since the 1950s (or whenever) is due solely to waste. We do pay more, but we also get more. All countries (as far as I know) have seen an increase in spending as a percentage of GDP.
    4) When people are attacking the current waste in the system as a target, it's not because they believe that health care spending can be magically reduced to the same portion of the economy that it was in ages past. It's that they believe that we can simultaneously reduce total spending and increase coverage compared to what we get today, by reducing waste.
    5) DrRich, besides making some very questionable assumptions, did not communicate his point in a clear, easy to understand manner.
    6) Despite all that, like every other scarce good, people will always want more medical care than they (or we) can actually afford. Also, your children will never get that pony. We already know: we're adults now. Let's get back to discussing what we actually can achieve.

  • Jonathan O'Connor says:

    Blake's 7 was a terrific series. 2 marvellous computers, Zen and Orac, the most cunning and clever computer scientist ever seen on TV, and a super sexy villainess. What was her name? Servilan?

  • Valhar2000 says:

    Oh. But I forgot. Programming code, your stock in trade, has no sense of humor.

    Ah, yes! No sense of humor! The last ditch defense of the arrogant incompetent. However, I have noticed that you conspicuously failed to accuse Mark of living alone in his mother's basement; still, I'll give you a B+.

  • Jud says:

    Mark, just what a slippery slope this "no rationing" argument is can be seen from a couple of sentences in your comment #2:
    From what I can see, it should be possible to provide basic medical care to everyone. So everyone can get regular checkups; everyone has access to care when they're sick; and everyone has access to life-saving medicine.
    Let's take a look at the last of those "everyone" phrases. Since, in the words of Jim Morrison or his biographer, "No one here gets out alive," there are obviously going to be more and less valuable exercises of life-saving, and certainly more and less costly ones.
    Something around one fourth of Medicare's total budget is spent on care during the last year of life (http://www.cms.hhs.gov/ActuarialStudies/downloads/Last_Year_of_Life.pdf), the majority of that cost coming in the last couple of months (http://content.nejm.org/cgi/content/abstract/328/15/1092).
    Of course end-of-life care may tend to deal with more severe medical situations, and much of the time we can't know a treatment is being given during the last year or few months of life. But that doesn't mean it wouldn't be useful to think, as a matter of national health care policy, about designing a system to devote more resources to, e.g., preventive and wellness measures, rather than expensive "heroic" treatments that prolong life only a little and don't add to (or even diminish) its quality.
    Yes, we can leave it to individuals and their families to take measures that buck the general trend. For example, we can advise people to have living wills that decline heroic treatment in certain very restricted situations. But this piecemeal approach just gives us the system we have now, where at times of great stress individuals or their families are left to try to swim against a tide that calls for the exertion of every last measure in order to prolong life every last minute. (My wife and brother-in-law were advised by the "pro-life" doctor attending their unconscious and terminally ill father that if they went along with his living will and refused a feeding tube, local senior groups would publicize and criticize their refusal, and would perhaps even take unspecified stronger measures. He died within hours of this conversation, so fortunately it never came to a showdown.)
    If we did succeed in designing such a system, it would tend to "ration" end-of-life care, though of course hopefully it would do so rationally (apologies for the pun).

  • But by that same argument, the economy should also grow because the number of productive workers increases with the population.
    Not necessarily: this is another one of those seemingly linear but really non-linear processes. If the population is increasing due to an increasing birth rate with a stable life expectancy/death rate, then the statement is true. If, however, (and this is the case right now) the population is increasing due to extended life expectancies in spite of slowing birth rates, then the population of elderly increases but not (necessarily) the population of productive workers. For more, check out the social security debate we've been having for the last five years or so.

  • KeithB says:

    Jud wrote:
    "Something around one fourth of Medicare's total budget is spent on care during the last year of life "
    Since this is Medicare, we are already paying for this. Given that the folks currently uninsured don't qualify for Medicare, I think we can assume that they will not add too much to the "end of life care".

  • Jud says:

    KeithB @ #28:
    My comment @ #26 wasn't meant to argue for or against expanding coverage to the uninsured. I'm in favor of expanding coverage. I think people having to suffer because they don't have health insurance is pretty close to sinful, for whatever definition of "sin" you might prefer. (That nonsense about "they just have to show up in the emergency room" is only ever said by folks who have never been in that situation, either as patients or providers. If emergency care was at all preferable to more conventional preventive, curative, or chronic care measures, we'd all get our care in emergency rooms. To the extent those of us with health coverage don't use emergency rooms, we prove every day that's not a preferable or even a reasonably equivalent model of care.)
    I would guess the costs of end-of-life care for the uninsured are already for the most part in the system, based on the (unconfirmed) assumption that those in emergent situations or their families/friends already seek care if they can and worry about any financial repercussions later. In fact, formally including such people within the system may actually reduce the amounts expended on them to the extent preventive or curative measures are effective and obviate the need for more expensive emergency care.

  • David S says:

    It is interesting to compare the trend in lasic eye surgery, which is not covered by insurance, and any insurance covered surgical procedure. From what I can tell, when you make price and performance transparent to the consumer, market forces drive down cost and increases performance. Have you ever tried getting the cost of a procedure in advanced? Have you ever tried getting the success rate of your doctor in advanced? Are you able to shop by price or performance within you health insurance plan?
    When it comes to health care reform, Karl Denninger, makes several important points:
    "1. There are no published prices. In no other line of work is it legal to do this. Nowhere. You can't sell someone a hot dog and tell them after they eat it what it just cost them. You can't hire a lawyer and have him tell you "I'll tell you what this will cost when we're done." You can't hire an electrician and have him tell you "I'll make up a bill when I'm done." In every line of work except health care, this is illegal. There are even laws for "major" consumer work (e.g. contracting, auto repair, etc) where they must give you a binding written estimate before beginning work!
    2. Robinson-Patman makes it illegal to discriminate against like kind purchasers of goods in pricing decisions when the effect of doing so is to lessen competition. While it does not apply to services, it darn well should. Whether you are paying privately, you have private insurance or you're a Medicare patient if you need to have a breast reconstructed due to cancer the complexity of the procedure does not change. Yet it is a fact that the privately-billed amounts for uninsured ("rack rate") patients are often ten times or more that billed to insurers or Medicare. Try charging a cash purchaser 10x more for a TV than someone who finances that TV on your in-house credit facility and you would be shut down and thrown in jail.
    #1 and #2 exist because of explicit efforts by the "health care" industry to exempt themselves from the laws that every other merchant of every other good and service in the United States must adhere to."
    excerpted from http://market-ticker.denninger.net/archives/1187-Health-Reform-Who-Are-They-Trying-To-Fool.html

  • Michael Ralston says:

    David: One reason that you didn't mention why Lasik is better than most health-care procedures, costwise, is that Lasik is not urgent.
    If you need an appendectomy ... you can't spend a few days shopping around. You go to the hospital and get it.
    If you break a bone ... you'd better not spend time shopping around, you'd better get the damn thing set (if necessary) and put into a cast.
    If you have a heart attack or a stroke ... every second of delay in getting health care results in worse outcomes. You can't shop around.
    Whereas if you spend a week shopping around for Lasik... you spend an extra week wearing glasses. This fundamental difference is why a market approach to most of health care can never really work.

  • Grumba says:

    As usual everything depends on semantics- rationing/schmationing! A ration is a share, or a fixed or variable ratio of something based on some formula. A model of any sort works with ratios- just like whenever a nation taxes people, it usually does it with ratios, and then spends the tax revenue back on the people who contributed in the first place. Then it uses various ratios to allocate to different sectors = = = = rationing. My bug bear is that, ignoring the USA system of private insurance for the moment, doctors usually decide what they'll spend your ration on, eg. recently at a Festival of Ideas here in Adelaide, Australia and old vascular surgeon gets up and says he can save a 92 year-old with a cracked aorta by putting in a monster stent, costing $12 000 (never mind the hotel costs and salaries etc). Sure, great- it shuts up the grieving relatives who say dear old grandpa always paid his taxes and deserves to get something back... BUT what about the 10 middle-aged men who are trying hard to earn a living (and pay their taxes) but each need an itty-bitty $1200 stent to keep their hearts nicely oxygenated for however many years? What sort of rationing is this?

  • Returning Tarzan says:

    If any of you can explain the logic behind the FDA ban on electronic cigarettes, I'll accept that you honestly believe your government as a whole can be trusted with your well-being.
    The whole argument sounds like naive anti-corporatism resting on a widespread desire to shed personal responsibility (especially when you hear these arguments about corporate executives and their excessive check-ups) Why not start by asking if your government even *wants* you to live a long and healthy life? It seems so internally conflicted that it can't even decide if it wants people to die from cancer or not.
    Although it's almost as biased in its tone as this blog ;), try the following article. It sums it up nicely and gets the points across: http://tobaccoanalysis.blogspot.com/2009/07/fda-lunacy-product-we-know-will-kill.html
    There are many similar issues worth mentioning, like the illegality of marijuana vs. the legality of alcohol, and so on, but electronic cigarettes are such a clear-cut case - if you get your statistics from anywhere but the tobacco industry itself, tobacco is one of the leading causes of death in the world, and here's an extremely promising product that could well put an end to most of it. Yet, for the stupidest of reasons, you can't have one.
    You see, it seems to me that private insurers may be complete bastards for only caring about the bottom line, but at least there is that correlation between the bottom line and the client's health: the ideal situation for both parties is if the client never needs to file a claim. So while there may be conflicts of interest (as in any exchange of money/goods/services), it's difficult to imagine a private insurance company deciding to penalise its clients for choosing a healthier alternative to smoking.
    All in all it seems to me no more realistic to rid big government of pathological personalities, corruption and lobbyism than it would be to rid big business of opportunists, and I don't see how any discussion of government-run health care schemes can even begin without addressing that issue.

  • David S says:

    @Michael Ralston wrote:
    One reason that you didn't mention why Lasik is better than most health-care procedures, costwise, is that Lasik is not urgent.
    David:
    This was addressed in the link I provided. Again quoting Denninger, "Now clearly #1 doesn't work so well when you're unconscious due to a heart attack or just wrecking your car. But setting your broken leg or performing a cardiac procedure is something that's done for people who aren't incapacitated too, so guess what - the price is already published and thus the charge known.
    This prevents the common practice of hospitals gouging private payers, it exposes prices and brings competition to pricing, and allows the free market to work. It ends the preference for "insurance" on routine procedures.""
    Again, read http://market-ticker.denninger.net/archives/1187-Health-Reform-Who-Are-They-Trying-To-Fool.html
    for the rest.

  • Jason Dick says:

    I think to say whether or not rationing is inevitable, you have to define what you mean by rationing. In one sense, as many above have noted, rationing is inevitable in the sense that resources are limited. However, if we define rationing as a way of selecting who will or will not be provided a specific sort of care, then obviously no, rationing is in no way, shape, or form required. But I would tend to say it can be considered a good thing, if implemented well.
    Of course, our current system of rationing is horrifying, as many above have noted. But there is a reasonable argument for rationing: what if we have a treatment that is more effective than the alternatives, but also much more costly than the alternatives? Currently such a treatment would simply be relegated to the rich alone, and that would be that. I think we all agree here that this is rather morally repugnant. But, at the same time, a universal health care system can't reasonably pay for every such example of care that is efficacious but expensive.
    So a system that rations such care only makes sense. Presumably the system would work best if it provided this care to those people to whom it is most beneficial. That's going to be a difficult thing to quantify, but it would at least be nice if guidelines were put in place so that people knew, even if said guidelines aren't always going to be quite inline with providing the most benefit.
    And it would be particularly beneficial if the primary costs associated with this more expensive care were not intrinsic, but instead would be related to economies of scale, where the rationing could ease and eventually be lifted, with the care later being offered to everybody.

  • Jason Dick says:

    Returning Tarzan,

    You see, it seems to me that private insurers may be complete bastards for only caring about the bottom line, but at least there is that correlation between the bottom line and the client's health: the ideal situation for both parties is if the client never needs to file a claim. So while there may be conflicts of interest (as in any exchange of money/goods/services), it's difficult to imagine a private insurance company deciding to penalise its clients for choosing a healthier alternative to smoking.

    Sorry, but it doesn't work this way. I am tempted to classify this argument in certain derogatory terms, but I think I'll refrain. First, your logic here doesn't work: "the ideal situation for both parties is if the client never needs to file a claim." The problem with the statement is simple: if the client never needs to file a claim, then the insurance company has never had any impact whatsoever on the client's health!
    What we get instead is that insurance companies are fine with paying for routine care, but start denying care the second it starts to get expensive, which is the second people need it. When insurance companies are allowed to deny people care when said care starts to grow out of bounds (bounds that the insurance company specifies), then they have no interest whatsoever in maintaining peoples' health. They instead spend all their resources picking and choosing which people to provide care for, and which people to deny.
    That is the system we live with today (or don't).
    Finally, let me note that our current system of government-paid care, medicare, which services a good fraction of people that the insurance companies won't touch (people over 65), has a much better cost/benefit ratio than private insurance: medicare actually spends much less money on administration compared to how much medical care it pays for than private insurance. Because remember, private insurance is spending all those administrative costs in reducing how much it pays to keep people healthy.

  • Returning Tarzan says:

    Jason,
    The problem with the statement is simple: if the client never needs to file a claim, then the insurance company has never had any impact whatsoever on the client's health!
    I don't see that as a problem. An insurance company is not a treatment, it's a way to make sure you're covered financially in case you need to pay for treatment.
    Nobody goes around hoping to break a leg just because the treatment would be covered in full. Even if it costs you no money, it still sucks to break a leg. And the insurance company doesn't want you to break a leg either. Even if they could get away with calling your broken leg a preexisting condition, they'd rather you didn't have to file a claim at all. For you and for your insurance company, it works out better if you don't break your leg.
    I'm contrasting this to the insanity of government health policies, most recently betrayed by the FDA's decision to ban electronic cigarettes (cigarette substitutes that don't f you up and give your kids lung cancer, too) while accepting that conventional death-on-a-stick is sold everywhere. It's a decision that should make you question whether politicians can simply be trusted to have at least good intentions. Before that assumption is justified, arguing about the relative cost-efficiency of government-run health care is premature.

  • Its always weird to me when republicans go on and on about rationing but never seem to care about now where its rationed so that a large segment of our population doesn't get anything.

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