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The Provider Problem

3 Annual Change in Private per Capita National Health Spending (Adjusted for Inflation) 1961-2007.jpg

There's a thread of health-care reform commentary that makes it seem like the primary virtue of the project is sticking it to private insurers. Matt Yglesias, however, envisions a world in which what's good for BlueCross BlueShield is good for him. It can happen. Providers are the bigger problem.

As people frequently say, health-care reform won't work if costs continue to shoot up and insurance becomes unaffordable. The cost of health insurance, however, is really another way of saying "the cost of health care." In the '90s, insurers managed to hold costs down, as you can see in the Kaiser graph atop this post. But people hated them for it, as they perceived, not entirely inaccurately, that they were keeping costs down by making it harder to access care (which is to say, harder to give money to providers). So they stopped doing it and costs began to shoot back up.

Conversely, Medicare keeps costs down somewhat better than private insurers, though not as well as private insurers did in the '90s, and they do it by paying providers less money. Providers hate them for it, and that's why doctors and hospitals and drug companies and device manufacturers have been so aggressive in opposing a public plan able to use Medicare rates. It's also why Medicare's growth rate is totally unsustainable -- Congress keeps delaying the cuts in doctor's payments that the Medicare law requires.

If you want cost control, though, you're going to have to follow through on one of these strategies, and that's going to mean making providers and patients really angry. Both like the health system better when it's got unlimited amounts of money flowing through it. It's actually easier for me to imagine a system with private insurers that holds costs down than a system with the current provider reimbursement rates and relatively passive insurers (be they private or public) that holds costs down. Something's gotta give.

By Ezra Klein  |  September 9, 2009; 8:18 AM ET
Categories:  Health Reform  
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Comments

You forgot to add the part about how the health care reform bills are going to actually DO something about these problems and why I should therefore support them rather than hope they die a horrible death.

Posted by: ostap666 | September 9, 2009 8:48 AM | Report abuse

Medicare keeps costs down somewhat better than private insurers, though not as well as private insurers did in the '90s, and they do it by paying providers less money.

I got the impression from the PBS Frontline report "Sick Around the World" (see link below) that that is how the nations with Government provided insurance control costs. They simple squeeze the providers Monopsony style.

http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/

Considering their past and their control of state licensing few will have simplicity for the AMA.

Posted by: jwogdn | September 9, 2009 9:09 AM | Report abuse

Nobody likes insurers so they make a good target, but of course providers are the main problem. We need to get providers to organize themselves more efficiently. Specifically solo and small group practice has got to go. Those are the docs screaming that they can't survive on Medicare rates--because their overhead is so high and they can't afford to implement the best information technology. And you need good I.T. to deal with the complicated reimbursement schemes that are envisioned.

The public option would have been great to accelerate the transition to larger more integrated delivery systems. If you set it up like Kaiser where all the docs are on salary in a closed system--beautiful.

Posted by: bmull | September 9, 2009 9:14 AM | Report abuse

My compromise plan below is an attempt to get the most capable half of Americans to control medical spending. It make shop around for care (think Apollo healthcare) and politically by making them look at the problems created by excessive licencing.

The state would provide insurance to all Americans but the annual deductible on the insurance would be equal to the family’s trailing year adjusted income minus the poverty line income (say $25,000 for a family of 4) + $300. So a family of 4 with a trailing year adjusted income of $30,000 would have a deductible of $5,300. A family of 4 with a trailing year adjusted income of $80,000 would have a deductible of $55,300. Middle class and rich people could fill the gap with private supplemental insurance but this should be full taxed. This would encourage the middle class and rich, who are generally capable people, to demand prices from medical providers and might force down costs. They could opt to pay for most healthcare out of pocket while the poor often less capable would be protected.

It is not a perfect plan but it might help. Some deregulation of healthcare would also help the poor gain access. The gauntlet that Doctors have to run these days to get to practice seems like an anachronism in today’s world. Let smart people get to practice medicine after on the job training. Let the medical businesses decide who is qualified to practice medicine. 12 years of training to tell if my child has an ear infection is overkill and reduces access to healthcare for the poor.

Posted by: jwogdn | September 9, 2009 9:19 AM | Report abuse

BMull wrote:

"Nobody likes insurers "

Well then why do they have low deducible insurance maximizing how much they have to deal with insurers.

Revealed preference baby.

Maybe they like insurance companies because they are such pushovers.

The providers complain about insurance companies too but they gotta love'em. Fighting with insurers may not be fun but it is a lot easer than chasing individuals for their bills. In fact I think it was the providers who invented medical insurance.

Posted by: jwogdn | September 9, 2009 9:27 AM | Report abuse

The problem with your argument is that it ASSUMES that providers are the main problem. There are a whole host of factors driving up costs, and provider compensation is only a problem for some specialties and under some circumstances; and this is more a matter of the current cost structure than provider greed. Why do I have to write this?

1. Fee for service plans, coupled with insurers unwillingness to pay reasonable rates for compensation, cause doctors to overbill in the expectation that they aren't going to get paid what they bill. The result is that prices are gamed rather than negotiated. Some Doctors make out handsomely from this, but many simply can't afford to bill at the medicare rates. Cutting compensation will drive these doctors out of business.

2. Medical equipment, inflated Hospital and Clinical fees, and drugs inflate costs even faster than provider fees. All these are rated. Drugs are over-priced where-ever there is low rate production or a partial monopoly. Equipment is sold 10-20 times or leased at rates more expensive than it would cost to buy the equipment outright. There is little incentive to keep such costs down because both the hospitals, labs, and insurance companies prefer to bill piecework because they can get away with it.

3. Hospital and Clinic administrators could control these costs, but only if the system as a whole is allowed to negotiate prices with the drug companies, to bargain for equipment; and if the various companies involved are subject to vigorous anti-trust enforcement.

4. In some cases there are conflicts of interests from Doctors who own labs, or wear inappropriate multiple hats -- that could be contained by some internal policing and new laws.

5. Controlling provider costs would be simple too. If Doctors are paid a retainer, and given incentives based on outcomes, on the Mayo Clinic Model, costs can be contained reasonably and in a manner acceptable to both groups. Blaming any one group for the problem is kind of dumb because Provider Companies, Insurance Companies, Hospitals, Drug Companies, and Medical Equipment companies are all playing in a system that requires them to play billing games just to stay in business, and rewards them handsomely for what others outside the business might see as fraud, monopolistic practices, and profiteering.

Posted by: chris_holte | September 9, 2009 9:33 AM | Report abuse

Ezra, you say the graph shows how providers managed to hold down cost growth (relative to inflation) during the 90s. That's one interpretation, but the three decades of data that precede the 90s in that graph show a lot of ups and downs. By itself, that graph is hardly convincing that the 90s model was especially effective, as opposed to your standard issue coincidence of statistical flux.

Posted by: JonathanTE | September 9, 2009 9:38 AM | Report abuse

How about another approach (in addition to whatever Obama can get through this year): expand the supply of providers. Ease the entry requirements for the various professions with the bargain that people admitted under the easier requirements would be more closely scrutinized in terms of the quality of care provided. (Easy enough to do with electronic health records.)

Posted by: bharshaw | September 9, 2009 10:10 AM | Report abuse

ezra,

come on now! The high end automobile sector that is benefitted from many doctors will be taking a hit if providers need to scale back what they're paid. And how about those two poor souls that own Bayonne Medical Center in NJ. They're crying foul of BCBS of NJ in a lawsuit.

They originally proclaimed they were going to make Bayonne Medical Center an "outpatient services center with a diagnostic sleep center" as per here:

http://blog.nj.com/ledgerupdates/2007/09/iselin_firm_agrees_to_buy_bayo.html#more

but instead they realized that under NJ law they can forigve people's deductibles and costs and make a nice profit as per here:

http://ifawebnews.com/2009/05/29/new-jersey-health-insurer-suing-medical-center-for-fraud/

They asked for a 100% increase in their reimbursement from insurers and in turn you and me the policyholder. All this to make a couple of 30 somethings at IJGK LLC (a private equity firm) a nice tidy 20% profit in the backs of insureds.

This is what's wrong in the healthcare system and this profiteering from all (including insurers) needs to stop if everyone is going to have access to quality healthcare.

Posted by: visionbrkr | September 9, 2009 10:14 AM | Report abuse

Well then maybe people like yourself and Yglesias (admittedly he is a much far offender on this front) ought to stop spending so much time demonizing insurers and focus on the real issues. For every post like this one from Matt he's got 10 where he does nothing but make snark-filled attacks on private insurers.

Posted by: ab13 | September 9, 2009 10:24 AM | Report abuse

whoops, should read "much worse offender"

Posted by: ab13 | September 9, 2009 10:25 AM | Report abuse

Private insurers aren't good at holding costs down, they're good at holding *their* costs down. Rescission, routing first-round denial of claims, late payment, pushing out of unprofitable customers, dropping of unprofitable doctors -- all these things reduce the bill the insurance companies pay, but don't really rein in overall growth except insofar as people die prematurely or avoid needed care.

And insurance companies are in a bad position to control utilization of fancy new drugs and technologies because their stock portfolios (which have long driven year-to-year profitability) depend on high-flying companies that they can invest in. So by cutting down useless "innovation" they'd be cutting their own financial throats.

Posted by: paul314 | September 9, 2009 10:32 AM | Report abuse

paul314,

I'd be interested in your interpretation of what an "unprofitable doctor" is? Once that overcharges as compared to their peers?

its comical how doctors coming out of medical school LOVE insurers for the most part because they build their practice for them but once they feel they can convince people to come on their own and pay out of their pocket for services they drop insurers like a bad habit. Either that or they don't bother to mention to patients that they're sending them to outpatient surgery centers that don't participate in their insurance that they have a stake in and raise the cost for all of us. But please help the struggling doctor. He's got that Mercedes and boat payments to keep up. We wouldn't want him defaulting on that would we just to make sure we all can have affordable insurance would we???

Posted by: visionbrkr | September 9, 2009 10:38 AM | Report abuse

visionbrkr..."that is what is wrong...this profiteering by all needs to stop"....geez, you really ARE a socialist!! OK, I'm with you, single payer it is.

Posted by: scott1959 | September 9, 2009 10:40 AM | Report abuse

Paul, you couldn't be more wrong on those two points if you tried. First of all:

"Private insurers aren't good at holding costs down, they're good at holding *their* costs down. Rescission, routing first-round denial of claims, late payment, pushing out of unprofitable customers, dropping of unprofitable doctors -- all these things reduce the bill the insurance companies pay"

So why have their margins not been increasing? Yes, insurers have not been able to control costs, but this implies that they are able to extract greater profits, which is not at all true.

"And insurance companies are in a bad position to control utilization of fancy new drugs and technologies because their stock portfolios (which have long driven year-to-year profitability) depend on high-flying companies that they can invest in."

And this is just laughably wrong. Health insurers have short-term liabilities and thus need short-term highly liquid investments. Their portfolios usually consist of mainly low-yield bonds, not risky stocks in "high-flying" companies. If they own any stocks it is in large-cap relatively safe companies. Do you honestly believe there are insurers out there having a conversation like "We shouldn't pay for expensive new treatment/drug X, it costs too much, but we own so many shares of the medical start-up that invented it, so what the hell!" You honestly think that is at all connected with reality, and also that it would be a good business decision?

I realize people who are ignorant of the operations of an insurer love to devise these scenarios that fit their desired narrative, but this is just ridiculous. You make yourself look foolish saying things like this.

Posted by: ab13 | September 9, 2009 10:46 AM | Report abuse

scott,

haha. I never said they shouldn't make ANY profits just that it should be regulated and controlled, similar to the banking industry is about to be. My point is that insurers are already the most highly regulated industry but there are little or no regulations on the hospitals and doctors to stop their business practices. Certain doctors and hospitals like the one i mentioned have no qualms about sending any of us to collections and they do it happily because the dumb populace blames it on insurers because they're an easy target as opposed to their doctor who is the one actually calling the collection agency to send them to collections.

Posted by: visionbrkr | September 9, 2009 11:07 AM | Report abuse

What kills me about htis is that its clear Ezra knows we have a costs problem and the insurance problem is just a symptom. Yet he wants this healthcare reform bill to be all about reforming insurance with nothing at all in there to help control costs! Covering 15% of our population is bankrupting our country yet people want to cover more people while doing nothing at all to control costs. Just ridiculous.

Posted by: spotatl | September 9, 2009 11:56 AM | Report abuse

It's not that insurers can't keep costs down. If we have a trigger I'm sure they'll have no problem avoiding it by cutting benefits. The problem is the simple difference in overhead between private and public insurers, regardless of what the payout to providers is. That is something you cannot get around.

Posted by: slantedview | September 9, 2009 12:05 PM | Report abuse

jwogdn --

You have two problems with what you say.

First, if you read T.R Reid's book "The Healing of America," which the TV program is based on, you will find that most other countries (Japan is something of an exception) do not "squeeze" providers. They squeeze out wasteful spending. The problem in the US is not that doctors and hospitals are paid too much, it is that they do too much that is not useful. Other countries deal with that problem through mechanisms like Britain's NICE that make decisions to reduce waste.

Second, high deductible (or high co-pay) plans like you propose in your second post are not effective ways of dealing with costs. In general, people do not have enough information to make good decisions about their health care on a market or cost basis. They choose health care that is ineffective and reject health care that is effective, resulting in poor health care results and often in higher costs spent repairing the results of neglect that could have been dealt with much more cheaply if timely intervention had been sought.

In general, because of the extreme assymetry of information in health care, health care does not respond to classic market economics. Almost all economists agree on that.

The way to deal with health care costs is, as Ezra says, through the providers, and the way to do that is to create effective care standards that produce excellent results but avoid waste from ineffective or harmful management, and encourage choices that are both effective and efficient.

Visionbrkr is right (!!) in that providers need controls. However, most countries have found that the most effective way to exert control is through the payers, by strict regulation of the payer system.

Posted by: PatS2 | September 9, 2009 12:06 PM | Report abuse

"f you want cost control, though, you're going to have to follow through on one of these strategies"

Ezra,

I like a lot of this post, but you've fundamentally got this excerpted conclusion wrong. Cost growth is based on utilization growth. In sectors with high profit margins, e.g. drugs/device manufacturers, theoretically you can cut per unit profits as units increase (i.e. utilization) and basically keep them whole. But a lot of medicine-- physicians, hospitals, other health care providers-- they are lower margin. Per unit, there isn't a lot of profit to cut out. More MRI scans means more radiologists and MRI scanners. You can't just "bargain" lower rates, without explicitly putting people out of business. That ain't happening.

PS Its not really accurate to say that Medicare is "somewhat better." The percentage increase is a shade lower, the absolute dollar increase is a shade higher, and the curves follow each other pretty closely. Given that Medicare vs. private insurers is an apples vs. orange comparison (old, high cost patients vs. younger, lower cost patients)-- "mostly the same" is a lot more accurate the "somewhat better."

Posted by: wisewon | September 9, 2009 12:06 PM | Report abuse

PatS2,

"They choose health care that is ineffective and reject health care that is effective,"

Agreed. Structure your co-pays accordingly.

Posted by: wisewon | September 9, 2009 12:07 PM | Report abuse

personally i can't wait until we get to guaranteed issue coverage and we can see that the medical bankruptcy rate will lower slightly but it won't go down much at all so those that think its only insurers fault will realize it wasn't just them all along. They are one small piece of the medical bankruptcy puzzle but unfortunately the only ones that get focused on because they're an easy target. Once that target's gone we'll see who gets the blame then and then the rest of America will wake up to how they've been duped and whose been doing it.

Posted by: visionbrkr | September 9, 2009 12:07 PM | Report abuse

Spotatl --

It is not true that the reform bills do not contain structures to control costs. The House bills and the HELP bill, the only completed bills on display right now, all contain plans to control costs by eliminating wasteful and ineffective spending. That, in fact, was the feature that conservatives were attacking with their rants about rationing care.

In general, the conservatives have developed a two-pronged approach to attacking reform: first attack the cost of reform, and then attack the idea of reducing costs.

Posted by: PatS2 | September 9, 2009 12:27 PM | Report abuse

Ezra is just mouthing his BFF, Ezekiel Emanuel's views---- Medicare budget will HAVE TO BE GOUGED constantly now that Ezekiel's brother and Obama have preempted the major Medicare cost cutting tools with their deals with special interests --eg, their drug deal with big PhRMA.

Cutting reimbursements to the doctors, hospitals, nursing homes is the dream of this nightmare team that will have to use the Medicare budget, now and in the future, for an budget offset piggy bank using the power grab of proposed IMAC commission, where the President is king of Medicare.

Any President (think Newt Gingrich) can then rewrite all Medicare policy, can restructure all reimbursements and benefits, but IMAC restricts changes to ONLY those that reduce the Medicare budget----- a heartless, cynical policy with the number of Medicare beneficiaries DOUBLING.

IMAC, by design, will totally usurp any voter from having a democratic input to Medicare's policies ever again----- it takes 67% of Congress to overturn IMAC/Pres...

I am a progressive DEM that is disgusted by the Obama policy assault on the middle class, the disabled, the working poor, and the elderly.

And Obama's choice of spreadsheet jockeys, the uncompassionate and the bizarre for health care advisors------along with his Wall Street "worst practices " financial advisors---- is just too much for even this lifelong DEM to tolerate.

Obama's amazing hubris combined with the incompetence of his domestic policy appointees is going to hurt the Democratic party for a decade.

But Ezra likes his access, so you will never hear any of these "unpleasant anti-Obama/anti-Emanuel truths" from him.


Posted by: johnowl | September 9, 2009 12:31 PM | Report abuse

Wisewon --

I am suggesting eliminating the middle man: pay for effective care, don't pay for ineffective care, and forget the co-pay.

If people and their providers want ineffective medical management, they can pay for it themselves.

Your comment that cost growth is due to utilization growth is dead on. To make it clear to others, since I'm sure you know this, the utilization growth is not due to increased demand by patients but rather to changes in patterns of practice by providers, so the control of that needs to be at the level of the provider, not the consumer.

Posted by: PatS2 | September 9, 2009 12:35 PM | Report abuse

PatS2 is absolutely correct and when all providers don't stay in line with generally accepted practices and jump outside that realm in order to make a large profit it makes it harder for the honest doctors to stay in business and compete with other doctors.

Same guidelines apply to insurers that recind claims when they shouldn't or deny for pre-ex when they shouldn't. It makes it harder for those insurers who are doing right by their clients to do so because they're put at a competitive disadvantage.

Posted by: visionbrkr | September 9, 2009 12:49 PM | Report abuse

Visionbrkr --

To paraphrase Lincoln:

If creating an effective, efficient, and inclusive health care system can be accomplished based on private insurance, I would favor that.

If creating an effective, efficient, and inclusive health care system means we have to end private insurance, I would favor that.

The key to the whole problem is to control and (for the US) reverse costs. If we do that, providing excellent care for everyone will be easy. Other countries have done it. Many have used private insurance; some have used public systems.

The thing they all have in common is that they have mechanisms for changing provider behavior to eliminate waste by choosing effective and cost effective care and for implementing systems that prevent very costly and harmful errors and lapses in good management.

Posted by: PatS2 | September 9, 2009 12:49 PM | Report abuse

"control costs by eliminating wasteful and ineffective spending"

This will not result in real savings- this is lip service. And the problem for me with national healthcare is not that the goverment will have to ration care- the problem is that our political system is absolutely incapable of controlling costs whatsoever. Politicians simply have no reason to ever be in favor of cost control because people get so freaked out about their healthcare being limited that the opposition cannot help but try to win a political victory on the issue. I think the republican attacks on rationing are completely dishonest but it just reinforces exactly why I think that national healthcare is a bad idea- our politicians are simply not capable of making the kinds of hard decisions necessary to control costs.

Posted by: spotatl | September 9, 2009 1:06 PM | Report abuse

PatS2,

i agree. I'd love to think we can reverse healthcare inflation but for now i'll take slowing it to the rate of inflation. And i'd be for a public plan if it could meet it and private insurers couldn't. As you said some countries have public and some have private but again what we have now isn't working for many and will continue not working until we get everyone's incentives in line. That may put me out of work and so be it. I have a feeling I could consult with my larger clients and make a better living than I do now in this hodgepodge system we have and I'd be fine with that if it helped everyone get the care they needed.

In the end though providers are human. Mistakes will happen no matter what precautions we take. We all need to realize that and way too many forget that and expect a doctor to be able to cure all ills and many times he or she can't.

Posted by: visionbrkr | September 9, 2009 1:09 PM | Report abuse

johnowl --

IMAC, like MedPAC, is not restricted to cost cutting only. It is a mechanism to recommend what should be cut and also to recommend steps to implement management that should be implemented.

In this respect, it is like NICE. Everyone knows about NICE's efforts to control use of cancer treatments that are of questionable value. Few are aware that NICE called for an INCREASE in use of CT in trauma cases.

The key is to not lose sight of the goal of effective care. That was one of the things that made the private insurers efforts in the 90's vulnerable to public criticism, because they sometimes lost sight of effectiveness in their zeal to save money, and that gave their critics a club to beat them over the head with.

All of the foreign systems that progressives admire feature programs almost identical to IMAC, and HR 676 (Medicare for All) has an IMAC-like provision, because if you don't control costs at the level of effectiveness, you have to control costs at the level of exclusion of people.

We can get rid of private insurer overhead, we can cut drug prices to the bone, we can reduce provider incomes to the minimum, we can end the wars, but unless we bring cost inflation in health care under control, all of those savings will be eaten up in a few years and we will be back to high premiums, high deductibles, high co-pays, and other mechanisms to prevent all but the most wealthy Americans from getting health care.

The health care system is the only place in our economy where there is enough money to cover the costs of health care reform.

Posted by: PatS2 | September 9, 2009 1:11 PM | Report abuse

just for the record I'm going on a conference call held by Cigna to insurance reps across the country to garner the pulse of reform in about an hour. I was on the call during the summer and if you'd expect it was all hate Obama and find a way to destroy reform it was nothing of the sort. It was all that we need reform to make sure this becomes available to all and sustainable to all. So much for the evil empire that are insurers. I wonder when pre-ex goes away who the radical left will blame then for their lot in life??

Posted by: visionbrkr | September 9, 2009 1:16 PM | Report abuse

spotatl --

Control of costs of health care by elimination of ineffective practices has worked in every other developed country. They have costs that range from one half to three quarters as much as ours, have rates of inflation of health care costs that are half ours, and still have better health care outcomes both globally and in specific measurements of effectiveness of health care. All accomplished by government either directly or indirectly.

I suppose it is possible that there is something special about Americans that makes us incompetent compared with other people. I would be interested to hear what you think that is. I personally believe that Americans are just as competent as other people, and that we can accomplish this. In fact, we already have accomplished this, in places like the Mayo Clinic, the VA, Group Health of Seattle, and many others. Now we just need to extend those successes to the rest of the health care system.

Posted by: PatS2 | September 9, 2009 1:27 PM | Report abuse

I think that our politicians have shown over and over again that they are absolutely incapable of controlling costs on government healthcare. if other countries have politicians with more backbone or that are more insulated when they make an unpopular decision then good for those countries. Look at how Democrats react every time a republican wants to discuss controlling medicare costs. Look at how Republicans are currently reacting when democrats are discussing reasonable controls to medicare costs. No politician has the incentive to put the breaks on healthcare spending. Ezra flat out admits that democrats do not at all care about controlling healthcare costs. Republicans are currently proving that they don't at all care about controlling healthcare costs. Why do you think that covering 15% of the population is bankrupting the country but expanding that coverage would suddenly lead to politicians being more willing to push through cost controls? Ridiculous.

Posted by: spotatl | September 9, 2009 1:40 PM | Report abuse

PatS2 wrote:

Control of costs of health care by elimination of ineffective practices has worked in every other developed country.

But from what I have seen that is not how they spend less. In many countries they cover things like acupuncture, massage and traditional Chinese medicine that we know do not work (see my link above to PBS Frontline's "Sick Around the World"). A poster on Ezra's old page posted to an article that said that in France people more drugs and see doctors more than in the USA.

Posted by: jwogdn | September 9, 2009 2:46 PM | Report abuse

PatS2,

I'd suggest looking a little more at health systems in other countries. While they undoubtedly are in better shape than ours in terms of controlling costs, they are still on unsustainable paths as they grow 40-50% faster than GDP on average, among OECD countries.

What does that end up with? Countries like UK, Australia, and others that are beginning to experiment with how to provide some degree of consumer responsibility over health care purchasing. In other words, a government-driven approach to cost control, is limited in overall effectiveness. Ultimately, you need a combination of efforts. We'll all be doing value-based targeted cost-sharing in the future.

In short, while we're Health Care v1.0 and Europe is v2.0, Europe is thinking about reforms to v3.0. We shouldn't be limiting ourselves to solely government-based, monoposy purchasing, provider-centric solutions-- that's v2.0. Let's reform our system to be where they'll be in 2020, not where they were in 2000.

Posted by: wisewon | September 9, 2009 4:35 PM | Report abuse

Wiseone --

The Europeans and Asians certainly face, and are concerned about, rising health care costs. However, I am not familiar with any efforts to introduce anything resembling moral hazard in health care. As we both agreed above, moral hazard does not apply well in health care because of severe asymmetry of information. Consumers of health care are just not in the position to make decisions about how to spend effectively.

The proposals from Europe and Asia I have seen have primarily been -- wait for it -- use of gatekeepers. France, Japan, Germany, and others are all trying to introduce gatekeepers to intervene between patients and specialists as a means of cost reduction.

The other big offensive has been public health initiatives, with wellness campaigns -- anti-smoking, anti-obesity, urging use of vaccinations, pre-natal care, good nutrition, and exercise, as well as aggressive campaigns encouraging vaccinations, pre-natal care, well-child care, monitoring of conditions like diabetes, renal failure, asthma, congestive failure, and so on. Sometimes these are fairly aggressive programs: Japan requires that obese people have periodic weigh-in’s and counseling. Britain pays bonuses for doctors who meet performance objectives in health maintenance efforts.

In fact, health care 3.0 is NICE, incentives for primary care providers to engage in positive health maintenance, use of gate keepers, better quality assurance, and other steps. I am all for that.

Of course many other countries do use private insurance, sometimes with a wide variety of options available. However all of them feature regulation of insurance plans to make the basic plans of insurance conform to set guidelines to guarantee good coverage. The only consumer directed portions are options available for types of care not included in the standard packages and for frills -- a better lunch, a private room. And all of them feature predominately top down management of health care choices by providers.

Although they do face increases in health costs, both in absolute terms and as a percentage of GDP, the Asians and Europeans have a major advantage due to the unyielding effects of compounding. They start with a much smaller fraction of the GDP involved; their health care inflation rates are much smaller than ours; so the growth is much slower.

That is why our situation is an emergency and theirs a problem they can deal with at greater leisure.

Posted by: PatS2 | September 9, 2009 10:13 PM | Report abuse

EzK: "In the '90s, insurers managed to hold costs down, as you can see in the Kaiser graph atop this post. But people hated them for it, as they perceived, not entirely inaccurately, that they were keeping costs down by making it harder to access care (which is to say, harder to give money to providers)."

Yes, and the castration of the managed care organizations was largely the work of Democrats making political hay by supporting populist reforms.

"But people hated them for it, as they perceived, not entirely inaccurately, that they were keeping costs down by making it harder to access care (which is to say, harder to give money to providers)."

That's a gross oversimplification of how managed care firms cut costs. For example, another significant practice was to channel patients to a subset of clinicians who proved themselves to be comparatively cost efficient with no loss of quality. This practice was undercut by so-called any-willing-provider laws which forced managed care organizations to work with any doctor who agreed to accept their fee schedule.

In the same period, Congress, again led by Dems, mandated an expansion of mental health benefits. Now many people will argue that this was only fair and just but it has also contributed to rising health care costs.

EzK: "Conversely, Medicare keeps costs down somewhat better than private insurers, though not as well as private insurers did in the '90s, and they do it by paying providers less money."

Via monopsony power and, some would say, cost shifting to private insurers and thereby, the privately insured.

EzK: "It's also why Medicare's growth rate is totally unsustainable -- Congress keeps delaying the cuts in doctor's payments that the Medicare law requires."

So where is Congress going to find the requisite will to control costs in the new public plan?


"It's actually easier for me to imagine a system with private insurers that holds costs down than a system with the current provider reimbursement rates and relatively passive insurers (be they private or public) that holds costs down. Something's gotta give."

IMO, it would be preferrable for individuals to make the decisions regarding trade-offs (say, a premium break in exchange for lack of coverage of experimental or chiropractic treatments) not a government making one-size-fits-all decisions at the societal level. Experience has proven that the pols will lard the benefit schedules with all manner of questionable treatments and unrelated benefits because they can't resist the special interest groups.

Posted by: tbass1 | September 10, 2009 12:29 AM | Report abuse

PatS2 wrote:
All of the foreign systems that progressives admire feature programs almost identical to IMAC, and HR 676 (Medicare for All) has an IMAC-like provision, because if you don't control costs at the level of effectiveness, you have to control costs at the level of exclusion of people.

Bravo. I'm going to paste that on my office wall.

Posted by: eRobin1 | September 10, 2009 11:42 AM | Report abuse

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