Want To Contain Health Care Cost Then Use Less

TW: I have posted on health care frequently (check the key word "health care policy" down and to the right). The costs are growing at unsustainable rates, this is beyond dispute. What is open to massive dispute is how to address the growth. We are nowhere near a consensus on how to address the costs. I have said before and will repeat, we will need to consume less health care, easily said not so easily implemented. As the piece says, consuming less is always politically challenging, it will be unpopular. Our system hides the cost while making benefits more and more visible (e.g. I cringe every time I see another new commercial touting a disease I never knew existed).

From Robert Samuelson at Newsweek:
...Almost everyone agrees that the U.S. health-care system has gone haywire. It provides much splendid care but is so costly that 15 percent of the population lacks health insurance. Equally troubling, runaway spending is crowding out other government programs and, through bloated insurance premiums, squeezing workers' take-home pay. What McKinsey provides is a plausible estimate of the extent of overspending: almost one third.

This means that, compared with other advanced societies, the United States spends about a third more on health care than high American incomes alone would predict. In 2006, all U.S. health spending totaled about $2.1 trillion. Of that, McKinsey figures that nearly $650 billion exceeded what other rich societies, adjusted for relative incomes, spent.

For the extra money, we receive no indisputably large benefit in national well-being. On some health measures (breast-cancer survival rates, for instance), we do better than many countries; on some others (life expectancy, for instance), we do slightly worse. We are constantly searching for villains to explain this unsatisfactory situation. Because it's not peddling a political agenda and simply describes U.S. health spending, the McKinsey study debunks some popular theories.

...One is that our mixed private-public insurance system drives up costs through high administrative overhead. Claim forms create a paperwork morass; marketing expenses add to the burden. True, overhead costs in the United States are more than double the level in other countries. But the effect is modest, because all administrative costs account for a mere 7 percent of total health costs. Even halving administrative costs would offset only about six months of the annual growth in health spending of 6 to 7 percent.

The same is true of the alleged overuse of emergency-room care: another common scapegoat. In 2006, all emergency-room care cost $75 billion, about 3.5 percent of total health spending. That's too small to explain overall trends.

What really drives health spending, the study finds, is that Americans receive more costly medical services than other peoples do, and pay more for them. On a population-adjusted basis, the number of CT scans in 2005 was 72 percent higher in the United States than in Germany; U.S. reimbursement rates were four times higher. Knee replacements were 90 percent more frequent than in the average wealthy country and are growing rapidly...

We have a health-care system that reflects our national values. It's highly individualistic, entrepreneurial and suspicious of centralized supervision. Despite gripes about limits imposed by private insurers and Medicare, there are few effective controls on doctors' and patients' choices. That's what most Americans want. Patients understandably desire the most advanced surgeries, diagnostic tests and drugs. Doctors want the freedom to prescribe and recommend...

In 2006, consumers' out-of-pocket spending represented only 13 percent of total health spending, down from more than 50 percent in the 1950s. The trouble is that this semiautomatic system may now frustrate other national goals, because it displaces other spending and results in care that is unneeded or ineffective.

There is no major constituency for controlling spending. Because most patients don't pay their medical bills directly, they have little interest in using less care or shopping for lower-priced services. Providers (doctors, hospitals, drug companies, equipment manufacturers) have no interest in limiting care. What others call "health costs" are their incomes—wages, salaries, profits.

...our consistent policy has been to conceal the burden of health spending by burying it in untaxed corporate fringe benefits or government budgets. We could change this. We could charge the elderly more for Medicare. We could tax employer-provided health insurance as ordinary income. We could create a dedicated federal tax to cover government health costs—if health spending rose more than income, the tax would automatically rise. People would quickly see and feel the costs of our present system.

Because this is so, all these possible responses would be unpleasant and unpopular..."