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U. S. Health Care Contemporary Problems In Economics Steve Cunningham 1 U. S. Health Care Contemporary Problems In Economics Steve Cunningham 1

Healh Care in 1975 n In 1975, per capita health care spending was half Healh Care in 1975 n In 1975, per capita health care spending was half what it is today. – At that price, it would be affordable to all but the very poorest Americans today. – Antibiotics cured infections – Vaccinations prevented diseases. – Infant mortality was half what it was in 1940, so that only 1. 5% of infants failed to survive their first year. – Life expectancy increased from about 66. 5 in 1945 to 72. 5 in 1975. – Deaths from cardiovascular disease had plunged. 2

Today Record numbers uninsured. n Corporations face staggering costs. n Medicare and Medicaid are Today Record numbers uninsured. n Corporations face staggering costs. n Medicare and Medicaid are taking over the state and federal budgets. n Medical costs are skyrocketing. n What is the source of this? What is the solution? n 3

What are the facts? n Health Care Reforms: Facts and Fiction, by Vincent W. What are the facts? n Health Care Reforms: Facts and Fiction, by Vincent W. Cangello, MD, Director, Health Care Reform Institute. Gives cases from his experience: – Four patients need dialysis, but the budget only allows for three. Who dies? In some countries they have “God squads” who have to make such decisions. – “To do surgery to repair a broken hip on a 93 year-old woman is immoral. ” – “Do we void the warranty on the human body abused with alcohol, drugs, cigarettes, or food? ” 4

Scope n In 1995, the CBO announced that “in any given month, 40 million Scope n In 1995, the CBO announced that “in any given month, 40 million Americans are without health insurance. ” – Uninsured is not the same as without health care. » If any hospital refuses any patient needing life-saving attention, they are in violation of law. » There are many free clinics. – Problem with “any given month. ” » Change to “any 3 -month period” and the number drops in half! » Change to “any 28 -month period” and only 4% lack coverage. » Many without health care transitional. 5

Scope (2) n Based on 5 different studies, – 27 million (75%) of the Scope (2) n Based on 5 different studies, – 27 million (75%) of the 40 million are working or are dependents of worker » 14 million of these have employer group insurance through a relative (spouse or household head), yet they are listed as uninsured! » 20% are young adults, 18 -24, many covered by the family’s policy. n The study of the American College of Surgeons found that – 6 million people are “hard core uninsured. ” – Those in need of non-emergency care get care from hospitals. – In 1988, the value of such care was $17. 5 billion. 6

Scope (3) n Based on a random sample of 20, 000 “uninsured”, 50% were Scope (3) n Based on a random sample of 20, 000 “uninsured”, 50% were uninsured for 3 months or less. – Often they are just between jobs and choose not to buy coverage. – Some are eligible for Medicare during this period, but have not bothered to apply. n According to an independent study, “Most of our uninsured citizens obtain necessary health care sooner than citizens in countries with national health care systems. ” 7

Scope (4) n In the U. S. , poor people are eligible for Medicaid Scope (4) n In the U. S. , poor people are eligible for Medicaid or other programs—gov’t provided health care. – Many of the “uninsured” are not eligible for Medicaid because their incomes are too high, or because they are not citizens. » Many of the uninsured believe the cost is too high relative to the probability that they will need it. n In the U. S. , 86% of health care is paid by someone other than the patient. – Third-party payments remove incentives for efficiency. – The patient never weighs the cost of the care received. 8

Universal Health Care: First Facts n In nations with “universal care”, there are often Universal Health Care: First Facts n In nations with “universal care”, there are often long waiting lists for hospital admission. – Many Canadians carry American health policies and cross the border to avoid waiting lines. – In 1985, according to news reports, two children awaiting heart surgery in England died while waiting. n Price/wage controls have driven physicians to give up medicine or move to other countries (like the U. S. ) to practice medicine. It has proven more difficult to attract new students to medical schools. 9

Universal Health Care (2) n n In some nations with national health care, cardiac Universal Health Care (2) n n In some nations with national health care, cardiac surgery for smokers or kidney dialysis for drug addicts may be denied. Canada – Women have opened up their own clinics to get prompt PAP smears and Mammography. – Hidden cost—Canadians buying U. S. insurance. According to Dr. Adam Linton, a Canadian professor of medicine, “We have private practice in Canada. It’s called the United States!” – British Columbia ordered a 20% reduction in physician fees in 1993 » 2/3 of doctors in Prince Rupert, BC, threatened a boycott. – Bureaucratic nightmares. 10

Universal Health Care (3) n Great Britain – Have moved to more of an Universal Health Care (3) n Great Britain – Have moved to more of an HMO approach after their National Health Service (NHS) was failing. – The HMO are causing prices to rise. – Striking workers are asking for private health insurance in their new contracts. – Several thousand “fed-up” dentists said they would bill NHS no longer. – A British reporter wrote that it was difficult to find a British subject over 40 with natural teeth. 11

Universal Health Care n Germany – Doctors are forced to charge “per visit”, so Universal Health Care n Germany – Doctors are forced to charge “per visit”, so they often take several visits to complete their diagnosis. – Hospitalization periods are long. – Doctors annual incomes top out around $80, 000. – Ineffective medicines are prescribed because they are on the official list. 12

High and Rising Costs—Why? n One argument has to do with the way medicine High and Rising Costs—Why? n One argument has to do with the way medicine is practiced now. – In 2005, more than 24 million MRIs were performed at a cost of hundreds of dollars each. – In 2005, in the U. S. , patients are more likely than ever before to visit a specialist. – Patients receive treatments that are more capitalintensive. – Some call this “premium medicine. ” – It is less sure how often premium medicine makes a difference in health outcomes. 13

Premium Medicine: Key Points n n n Health care in the U. S. today Premium Medicine: Key Points n n n Health care in the U. S. today is more expensive, and this is primarily because of premium medicine. U. S. health care today utilizes more physical capital and human capital than before or elsewhere. Premium medicine reflects cultural expectations of a high level of effort to diagnose correctly and treat effectively. Evidence is mixed about whether it has increased the benefits of health care. We have conquered many infectious diseases. Now we are tackling degenerative diseases which cost more for less marginal benefit. – We’ll spend more and more for less and less improvement. 14

Premium Medicine n According to Arnold Pring, Crisis of Abundance: Rethinking How We Pay Premium Medicine n According to Arnold Pring, Crisis of Abundance: Rethinking How We Pay for Health Care, 2006. – The U. S. has the highest ratio of specialists to GPs in the world. – Heart bypass surgery is 3 times more common here than in France, 2 times more common than in U. K. – Often extreme measures used for diagnosis or treatment are the result of fear of lawsuit. – Rarely do premium diagnostic procedures affect the treatment plan. 15

Premium Medicine (2) n Options for treatment: – Do nothing – Treat “empirically” – Premium Medicine (2) n Options for treatment: – Do nothing – Treat “empirically” – Treat after thorough analysis, ruling out other possibilities right away. n Example given by Pring of 1, 000 patients with severe cough. 16

Scenario 1: Private Insurance Fails n Fails because risk pools break down: – – Scenario 1: Private Insurance Fails n Fails because risk pools break down: – – Adverse selection This makes premiums higher (because pool is biased) Insurer has to cut back benefits Insurer wants to exclude those who would actually make claims – Uninsured people result n Pring argues that this is theoretically possible, but there is little evidence that risk pools have failed in this way. 17

Scenario 1 (continued) n n n Employer-provided coverage seems to have mitigated this. Evidence Scenario 1 (continued) n n n Employer-provided coverage seems to have mitigated this. Evidence suggests that health insurance companies have been able to pool risks effectively. Why would pools suddenly break down? If adverse selection/pool breakdown in the U. S. private sector is the problem, then there should be significant differences in costs for pre-65 people relative to countries with all public sector coverage. There is not. Result: this can’t be the cause of U. S. cost problems. It is not a private sector failing. 18

Scenario 2: Providers Overcharge n n Those who support this argument say that under Scenario 2: Providers Overcharge n n Those who support this argument say that under a multipayer system, purchasers lack bargaining power. If this is true, then industry concentration ratios should be high, U. S. costs should be higher than foreign provider costs, and U. S. profit margins should be higher. – In a study by Gerard Anderson, et al. , they compare the prices and costs of a dermatologist visit in the U. S. vs. France. Argues that U. S. spends more, but are no more healthy. Doesn’t compare procedures in the two places. – Profit margins are high, but concentration ratios are not particularly high. 19

Scenario 3: Premium Medicine n n Greater use of specialists and technology causes higher Scenario 3: Premium Medicine n n Greater use of specialists and technology causes higher health care costs. If this is going on, should we be demonstrably healthier? – No better longevity – No lower age-adjusted mortality rates. n n Several authors argue that the marginal benefit due to premium medicine is very small. Aggregate longevity is affected by deaths in which medical intervention would make no difference: – Homicides, suicides, traffic fatalities, smoking, nutrition, genetics, etc. 20

Imposing a Single-Payer System Scenario Single Payer Description Insurance Failure Doctor-friendly Pay doctors at Imposing a Single-Payer System Scenario Single Payer Description Insurance Failure Doctor-friendly Pay doctors at usual rates Pay doctors less Supplier Doctor hostile overpricing Premium medicine Doctor limiting Ration supply or use of procedures 21

Insulation vs. Insurance n n Doctors like health insurance because it insures they get Insulation vs. Insurance n n Doctors like health insurance because it insures they get paid reliably for any procedure. Doctors prefer insulation: – – n They’d rather not have to charge patients. Make best decisions on patient needs without considering cost Allows them to make lower risk diagnoses Would also prefer not to be over-ridden by patients or insurance companies regarding the value of a treatment. True health insurance – – Covers major expenses, not minor ones. Covers major, long-term illnesses. Reduced renewal risk by guaranteeing low-cost renewal. Givers the insurer an interest in the long-term health of the consumer. 22

Single-Payer System Single-payer systems (or third-party systems) offer no incentive to consumers to ration Single-Payer System Single-payer systems (or third-party systems) offer no incentive to consumers to ration health care spending. n Any system we adopt will be subject to the competing pressures of n – Patients’ and physicians’ desire for autonomy – Patients’ desire to be insulated from cost – Society’s need to restrain health care spending 23

Other Possible Costs n Are drug company profits the problem? – Drug company profits Other Possible Costs n Are drug company profits the problem? – Drug company profits are less than 1% of GDP, while health care spending is 15%. Is malpractice insurance and litigation the problem? n Are free riders driving up costs? n 24

Limits? n If we actually allow unfettered access to health care, then government must Limits? n If we actually allow unfettered access to health care, then government must set budget limits. – Gov’t sets health care priorities. » Premium health care would have to be curtailed » People could go outside the system to buy additional treatments. » Like public vs. private schools, the rich will still buy premium services while the poor are relegated to limited gov’t programs. 25

Proposal Remove insulation from health care costs; make private or public insurance essentially catastrophic Proposal Remove insulation from health care costs; make private or public insurance essentially catastrophic coverage. n Provide cash or vouchers for the poor. (like food stamps) n Patients would have a large incentive to consider costs of treatments. n Efficiency would rise, costs fall. n 26