by hilzoy
Kevin Drum notes this passage from the President’s health care speech yesterday, in which the President spells out some of the benefits of his new Health Savings Accounts:
“The traditional insurance today will cover your health care costs — most of your health care costs — in exchange for a high premium payment up front. The costs are generally shared by you and your employer. You may also pay a small deductible and co-payment at the time of treatment. What’s interesting about this system is that those payments cover only a fraction of the actual costs of health care, the rest of which are picked up by a third party, basically your insurance company.
It means most Americans have no idea what their actual cost of treatment is. You show up, you got a traditional plan, you got your down payment, you pay a little co-pay, but you have no idea what the cost is. Somebody else pays it for you. And so there’s no reason at all to kind of worry about price. If somebody else is paying the bill, you just kind of — hey, it seems like a pretty good deal. There’s no pressure for an industry to lower price. And so what you’re seeing is price going up. If you don’t care what you’re paying, and the provider doesn’t have any incentive to lower, the natural inclination is for the cost to go up and the insurance companies, sure enough, pass on the costs — the increase in cost to you and your employer. That’s what’s happening. (…)
For many routine medical needs, HSAs mean you can shop around until you get the best treatment for the best price. In other words, it’s your money; you’re responsible for routine medical expenses; the insurance pays for the catastrophic care. You’re responsible for paying for the portion of your health care costs up to your deductible. And so you — you talk to your doctor, you say, can’t we find this drug at a little cheaper cost? Or you go to a specialist, maybe we can do this a little better — old Joe does it for X, I’m going — why don’t you try it for Y? It allows you to choose treatment or tests that meet your needs in a way that you’re comfortable with when it comes to paying the bills. In other words, decisions about routine medical treatments are made by you and the doc, not by third-party people that you never know. And all of a sudden, when you inject this type of thinking in the system, price starts to matter. You’re aware of price. You begin to say, well, maybe there’s a better way to do this, and more cost-effective way.”
My sentiments exactly. Just the other day I was beset by a hollow, empty feeling, and I said to myself: Self, there’s a void in my life — a void that could only be filled by spending hours calling around, comparing prices for doctors’ visits and pharmaceuticals, preferably while sick. Oh, if only I could say to my doctor: Maybe we can do this a little better — old Joe does it for X, I’m going — why don’t you try it for Y?
You see, shopping for medical services isn’t like ordinary shopping. When you go to the grocery store, for instance, they make it easy for you. There are the boxes of cereal all lined up, awaiting your inspection, and all you need to do is compare the price, the percentage of your daily vitamin needs provided by one carefully measured serving, and so on, and then make your selection. Where’s the fun in that? Shopping for medical services is different: hours spent finding and tracking down the relevant physicians and getting through their daunting office staff; price discussions with hospital administrators who don’t want to tell you exactly how much anaesthesia you’ll need without an exam, and so forth. The thrill of the chase! The call of the wild! By comparison, ordinary shopping is a tame and pitiful facsimile, like shooting cage-raised quail when you could be hunting grizzlies.
You might be thinking: silly hilzoy! You can do this already! But that just shows how little you know about the thrills of shopping for medical services. It’s just no fun without a little skin in the game: the sort of skin that you only have if your medical insurance won’t cover your bills. And that’s what Bush is offering us: the chance to have the shopping experience of a lifetime, and to have it under the most deliciously grueling conditions: with our own dollars on the line, when we’re desperately ill. It’s a vision as bold and rugged as America herself; and that’s why we love our President.
***
Obviously, though, Bush wasn’t designing this solely for our enjoyment. He claims to be motivated by a desire to cut health care costs. There’s only one problem: HSAs would have a negligible impact on health care costs. To show you why, I’m going to reprint a graph I made up last time I wrote about HSAs. It’s based on 2002 data from this Kaiser Family Foundation report (see exhibit 1.11.) It shows what percentage of our health care spending is done by those who spend the most.
HSAs cover medical expenses above a certain limit, often around $5,000. Pretty much everyone in the top 50% of spenders on health care will have reached that limit. (My health care spending hit five figures in the first five days of this year, and I’m not even especially sick.) That means that any reduction in health care spending will come from that tiny little blip on the right hand side of the graph: the 50% of the public that spends least on health care. Since that part of the public accounts for only a tiny part of health care spending (3.4% in 2002), most health economists don’t think HSAs will actually save all that much.
They will, however, have other dreadful effects, which I wrote about here and here. The most important one is to gut the present system of health insurance. Moreover, a new study by Jonathan Gruber shows the following:
“I estimate that the President’s budget proposals will cost almost $12 billion dollars per year if fully phased in. I estimate that these proposals will on net raise the number of uninsured (by 600,000 persons), as those left uninsured through firm dropping of insurance exceed those who gain insurance through taking up tax-subsidized high-deductible plans attached to HSAs.”
I can hear the nay-sayers among you grumbling that in a time of exploding budget deficits, twelve billion dollars seems like an awful lot of money to pay to strip health insurance away from six hundred thousand people, and leave many more underinsured, especially since anyone who wants to be uninsured can just cancel her insurance policy. But that just misses the point. In the immortal words of Rousseau, sometimes we must be “forced to be free” — in this case, free of health insurance, which enslaves the mind, degrades the spirit, and deprives us of the ennobling experience of shopping for medical services without a safety net.
This, then, is the inspiring vision to which our President calls us: to expand the liberties our forefathers gave us beyond freedom of speech, freedom of religion, freedom of assembly, and freedom of the press, to one of the noblest freedoms of all: the freedom to confront medical bills alone, in fear and trembling, without the false comfort of medical insurance, with only our own wits standing between us and personal bankruptcy.
PS: Yes, of course I’m joking.
I was standing at the reception desk at the eye doctor’s office just this afternoon…next to a young woman who teared up when they told her that the basic visit was 87. cash, since she had no insurance they did offer to phonre around for her to find a dotor that accepts our state medical fund for low income people. By the way, i’m blind and a three-eyed drunk tonnnight. i phone up my eye doc because I was seeing spots and I do have health insurance . I really wasn’t expecting to discover a serious probelm. In fact I wasmostly there to get a persriptioon renewed. But the eye doc saw a torn retina! Half hour later I was at the reinologist getting lasered. I wonder how the shopping around is supposed to work when the treatment is urgent?
Thank god for good medical insurance. No kidding, I am so grateful that when I need it, I have it. And there is a place in hell for government officals who pursue polidies that threaten people’s health insurance,
Blind AS a drunk. I’m not intoxicated at all, wish I was. Cheers!
I wonder how the shopping around is supposed to work when the treatment is urgent?
Your personal assistant can handle that, can’t she?
Dynamite post.
Price check in exam room two
The problem with insurance is that it’s too expensive as it is, and HSAs will do very little for people who can’t already afford insurance. There are two significant pieces of the puzzle. The first are the problems of getting and paying for care.
it is but one manifestation of your president’s general awesomeness, that he can make your current, fairly ludicrous, non-“socialised” system of healthcare actually sound really goddamn appealing, in precisely the speech in which he proposes to unravel it. observe:
“You show up, you got a traditional plan, you got your down payment, you pay a little co-pay, but you have no idea what the cost is. Somebody else pays it for you. And so there’s no reason at all to kind of worry about price. If somebody else is paying the bill, you just kind of — hey, it seems like a pretty good deal.”
the man is clearly a genius.
Yes, Mr. President, I’m sure I can do a far better job of negotiating medical expenses than my health insurer. After all, I might have to pay a whole $5,000, while they’re only on the hook for a few hundred million a year. And obviously I have a much bigger incentive to make cost minimization my main goal, since it’s only my own health on the line instead of a bunch of strangers’. Not only that, but every economist knows that individuals are far better at getting the best prices than large companies. Yes, I’m sure this is going to work spectacularly well.
And yet somehow I think that if my employer offered HSAs, I might still like to be able to cover my out-of-pocket costs at the rates my insurer has negotiated instead of paying the rates the providers are charging to cash patients. I’m kind of stupid that way.
Health care is privately owned enterprises, but it is not I repeat NOT that’s *NOT* a market enterprise.
This is because it has evolved from the system doctor’s put into place. Little protected niches with no price advertising debveloping into a business where there are all kinds of restrictions on sales of various products and not only no list of prices, but resistance to ratings. You can’t find out how well a doctor performs.
I have a chronic illness (cf). I’m one of those who burden the public heavily. I also am part of what is arguably the most advanced and developed nedicine in America. Yet I work with a cf team that must be continually redeeducated to my history, which forgets it even when they participated it, which has no short record (one or two pages) of my specific conditions or what distinguishes me. One of the later being that I have resisted the intense treatment (eg.. 2 week hospitalization every quarter) and reduced costs, I am not a hypochonidraic.
Yet when I was last in the hospital I warned that based on various symptoms I might still be harboring an infection (as we get older our infections (mostly harmless to the normal) develop antibiotic resistance) but because I was engaing in 6 hours of lung clearance (hand percusssion, a thing called the vest, walking and other things to shake the gunk out of my lungs) I was improving. Thus no problem to the doctors. The new one (I saw 6 in 15 days, a bit unusual) diagbosed me with diabetes because cf patients my age all have it because he hadn;t looked at the past including the blood sugar tests taken the night before.
Tens and tens of tests are made and forgotten, patterns not recorded. Doctors work in hurried rushes with no time to evaluate or think. They throw treatments out almost randomly and the system is arranged to their convenience.
And these are good doctors in caring systems. They also do not admit mistakes on the part of themselves or their colleagues despite the fact that this leads to juries filled with memories of similar treatments for themselves and relatives. Solid evidence that admitting mistakes and addressing them leads tyo far more settlements, but less moneyy going out while allowing reforms doesn’t matter because the public pays the huge costs that protect the doctors egoes.
The vast system we have were insurance companies and hospitals never thought of standardizing forms is the direct development of medicine that doctors controlled. Now they whine because bureaucrats take power but in most industries you have standardization and a bit of clarity on quality and prices. This has happened in medicine because it has developed in the form of little protected businesses where competition was discouraged.
The frustration of dealing with it makes people resentful and thinking they deserve every bell and whistle. I recently found that a simple inhaled saline solution (a concept developed in Australia when they foiund cf surfers were not develpoing infections) works better for me than an expensive ($1600/month) drug and will discontinue the later, but it’s against doctors advice.
So much could be saved if they would take time to analyze and deduce. With poor people thee is even less time. They get a really, really overworked set of professionals in a bureacracy no one could navigate and we have decided that rather than spend $10,000 to educate them and follow up on something like diabetes we prefer $100,000 in emergency rooms and surgery.
The waste is horrendous and it will not be solved by “letting doctors practice medicine.” The strengths in our system are nurses (who include sime very very highly skilled administrators and who actually run the complex systems that doctors treat as black boxes that automatically produce the results they order) respitory therapists and others in the non com class.
A number have the legal right for limited practice (nurse practioners, doctors assistants) and many of the others do truly practice medicine, spending time with the patient and educating.
In many areas we have a surplus of doctors, when that happens you don’t get a reduction in prices, you get an increase in expensive procedures. It’s a non market economy.
Our stats are not so good. We spend over 18% of gnp on health as opposed to 12% in the rest of the industrial world. We have the lowest life xpectancy and highest infant mortality in this group. We spend over 30% on “administration” as opposed to under 18% in the rest of the insustrial world. This difference is around a quarter trillion.
The dominant “privatizers” such as Bush do not want efficency. They wish to create more protected niches. Note the new Medicare bill which has actually cut off many essential drugs for the poor while creating a lucrative quagmire for insurance companies.
This gives a lot of strength to those who wish for a centralized system. It could work, but we must watch out for the “equalizers.” For example these people resent the fact that some people pay $1,000 + per year to get more attention from their doctors. Yet on balance time to discuss and explore wil mean less spent throwing expensive tests and treatments. This individual “luxury” will benefit the whole.
I favor some sort of market system, but one thing to note: a large number of those who are healthy will move to catastrophic insurance and other plans where they don’t bear the burden for people like me. This burden will more clearly fall on soxciety as a whole (alredy Medicare and 2/3rds of Medicaid go to the disabled and elderly) but I think a rational isolation and the building of specialized programs for various types of disease can be useful.
Despite my critiques of the cf system it has been there and it can be applied to various cancers and other chronic diseases.
In my opinion it is an “organizational” and “information” revolution. It is complex because at one level such as the specific response to a situation (eg. trauma) you have among the most efficient and amazing organizatons, but at a larger scale you have all kinds of holes and lacks. And waste. Huge amounts of information are gathered. But most are in black holes. Even where computers host the records their search capacities are primitive.
I support hospitals moving to the open source program the VA has made availible (it is a complete program for hospitals.) Not because it is perfect or the best, but it is ok, it provides a standard and like the net open source means it can be constantly improved and the improvements made public.
But if the Republicans ever find out the VA is doing such a thing they will shut it down.
it gets better!
not only do you get to shop around for doctors, you get to shop around for the secondary services like lab work and radiology!
imagine the joy of shopping for a doctor, then shopping for lab work, then a place to do your x-rays, then telling your doctor he has to use the lab and radiologist you’ve selected !
now imagine doing all this while being pulled from your car with the Jaws Of Life ! “Hold on! Don’t start the ambulance yet, I’m trying to find cheaper radiologist !”
And the patient (ahem, I mean customer) is not the only person in this little free-market tableaux who will be taking on a huge new burden; doctors will also need to spend time learning their market, and will need to invest in research, marketing, etc.; soon they will be competing with lawyers for space on the spines of phone books. Nothing could be further from “just letting doctors practice medicine” than requiring them to negotiate with every patient and undercut the endocrinologist down the hall.
Also, not to nitpick a great post by david, above, but this statement:
is not entirely fair; I have a friend who has been with the VA for about 8 years, and who works on the program you are talking about. It started in ’96, but according to him, it has gotten full support and has expanded during the 6 years the VA has been run by Republicans. So, credit where due, I suppose. They didn’t start it, but they haven’t f**ked it up.
it gets better!
I’m baffled who no one has put proctology and the invisible hand in the same sentence.
“I’m baffled who no one has put proctology and the invisible hand in the same sentence.”
An enterprising proctologist might advertise his services as “The power of glove.” He might even offer a special deal, with the slogan “Glove me two times.”
I’ll get back to work now.
and who among us can forget KISS’s early-80’s disco hit: I Was Made For Gloving You ! or the J Geils Band’s “Glove Stinks!
whew. i could run with that for days.
david,
Do you think doctors WANT to be harried and overworked to the point that they can’t follow patients properly? Ask any of them and they’d tell you that our system punishes them for taking the time to do the right thing.
Egos are rampant in medicine but so is beauracracy. Physicians do not have the reins anymore, hospital administrators and insurance companies dictate who gets what and when. The AMA protects physician’s compensation like any lobbying group but the insurance lobby has much more pull in DC. The system is screwed up b/c THEY make huge profits off of it.
The invisible hand is fisting all of us, and without a proper introduction, too.
Heet:
They built this system. It evolves directly from their business models. Now they are victims of it but they don’t use their power (which they wield so effectively elsewhere) to change it. Believe me the public would be supportive of proposals.
But they don’t make them, just as public school teachers bitch about the system but don’t push for alternatives besides smaller classes and no pay.
I have being involved in analysis of complex systems and simple useful summaries do save time in the long run. Doctors woyld be less pressed if they weren’t constantly rediscovering information. Even obvious things like complete lists of prescriptions are lacking from records.
So yes pragmatically they want it. They are not pushing for obvious changes. In many cases they benefit from the complexity of billing information, they benefit from consumers ignorance of success rates and resist any attempt to document failings.
Yes they get to bitch about various things. But a VA hospitals and others have tried systems were patients are informed of mistakes. The number of claims goes up, currently 90% of the victims of medical error get nothing except the right to pay the extra bills, but total costs would go down.
Such a system also encourages reform rather than hiding problems. So wy do doctors oppose it? Because it would require that they and their colleagues admit mistakes. Better let the consumer pay through higher insurance and taxes.
I am going to argue for HSA’s.
First, patient-paid care (LASIK, plastic surgery, etc) has not risen in cost to nearly the same extent that insurance-paid care has. Thus, there is at least some evidence that directly paying for care would help control costs.
Second, direct-paid care would reduce administrative costs. My sister works in an urgent-care facility; they have as many office staff as nurses. With HSA’s, the need to bill insurance companies, follow up on randomly rejected claims, etc is much lower–this would reduce costs.
Third, HSA’s enable people to afford insurance who otherwise couldn’t, since HSA plans are very much cheaper.