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Health Care Cost Fallacies

Tyler Cowen has cheekily been offering up some "health care cost fallacies" that are afflicting reform-minded folk. For instance, he asks if health reformers will agree with the "correct claim" that the "the fiscal outlook is grimmer than before, therefore we should spend less on health care reform than I used to think."

Speaking in my official capacity as a health reformer, the correct claim, I think, is that "the fiscal outlook is grimmer than before, therefore we should agree on more radical health reforms than were previously considered." It was all well and good to deny the government bargaining power (bargaining power that they have in Canada, France, Japan, Germany, etc.) or oppose global budgets when we had money to burn. But with default looming on the horizon, such niceties can no longer be indulged. Indeed, here is something we might call a correct graph, courtesy of the Center for Economic and Policy Research:


That orange line headed heaven-ward? That's our deficit. All those other lines dipping down? That's our deficit if we had the same health care spending per person as France, Germany, Canada, and the UK (all countries, incidentally, with higher life expectancies than our own). You might say, of course, that even radical reform would not bring us down to their health care spending. We could copy France's system wholesale and still pay more for care. You would be right. But such reforms would bring us much closer than we are now. And to flip Cowen's second fallacy, the fact that we cannot match the health care spending of other nations does not obviate the savings we are forgoing because we refuse to embrace their successful models.

By Ezra Klein  |  May 18, 2009; 11:12 AM ET
Categories:  Health Economics  
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Since the line is budget deficit as percentage of GDP (as opposed to something like budget deficit in 2009 dollars), has the denominator GDP been adjusted for the impact of reducing health care spending?

Posted by: pghsm | May 18, 2009 11:41 AM | Report abuse

I agree with Tyler that we will not be able to match other countries spend just because we adopt their policies. Despite the fact that there is tremendous waste in the system (estimates: 30%) the reality is it is hard to squeeze out, and to do so would get us to a long run negative cost trend rate...something that has never happened before in this country. Healthcare costs have almost always increased above the rate of general inflation. A huge win would be to get them to inflate at a rate modestly below general inflation....which should be doable given the waste in the system. But I don't think we can just magically change all providers practice patterns to be the same as those of the French.

Am I giving up too easily? Perhaps. But I am the pragmatist in this debate, remember.

Posted by: scott1959 | May 18, 2009 11:53 AM | Report abuse

That graph is so amazingly unbelievable. The entire healthcare remuneration process, as dictated by Federal and state rules, ensures that healthcare providers gain by providing ever more services in an ever more complex manner. To decrease costs at all, even in the most minor way, would require that this entire mindset be changed.

There's most certainly no change on the horizon in the Federal rules that dominate this area. And without such change, no healthcare provider has any incentive whatsoever to change their charging methods nor their provision of sevices either.

Posted by: AdrianNTierney | May 18, 2009 11:57 AM | Report abuse

So glad to see you're working for the WaPo now, Ezra! Keep up the good work.

Posted by: davestickler | May 18, 2009 12:43 PM | Report abuse

Does France provide free health care for 15 million illegal immigrants?

Posted by: rkinneypa | May 18, 2009 1:30 PM | Report abuse

Does France allow unlimited damages in medical malpractice suits?

Posted by: rkinneypa | May 18, 2009 1:31 PM | Report abuse

France does allow people to go to any doctor they choose, at any time they choose. If you are working, the govt pays 80% of the bill. Simple as that (unless they've changed it in the last decade or so). SO the docs are NOT govt employees.

Missing from any debate about what the 'government' should do is ALWAYS the fact that we are such a disparate country. What works in rural mississippi won't work in NYC won't work in Nebraska, and won't work in Florida.

Fewer people are going into the medical field, because really, why bother. It's almost impossible to see a doctor in certain specialties, etc. NOW.

We need people to have ACCESS to care, who cares if they have 'insurance' or not - it's a red herring.

Posted by: atlmom1234 | May 18, 2009 5:43 PM | Report abuse

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