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Posted at 2:00 PM ET, 02/16/2011

The problem is not MedicareandMedicaid. It's health care.

By Ezra Klein

nonhealthincome.jpg

Paul Krugman has a line I like. "There is no such program," he says, "as Socialsecuritymedicareandmedicaid." When we talk about entitlement spending -- which I do fairly often -- we group together two separate and very different spending problems. One problem is that Social Security requires a one-time infusion of funds because its demographic composition has changed. Another problem is that health-care costs -- including for Medicare and Medicaid -- are growing faster than the rest of the economy. Social Security is an accounting problem that we know how to solve. Health-care costs are the product of a complicated, multifaceted system, and we don't know what to do about them. The two have very little to do with one another.

So I'd take Krugman's point a step further: There sort of is a program called MedicareandMedicaid. But it's very difficult to imagine a world in which the costs for Medicare and Medicaid have slowed but the costs for private health-care insurance haven't. The right analogy, perhaps, is food prices. If the cost of food skyrockets, my grocery bills will go up, and so too will school-lunch programs go up. The same goes for health care: So long as health-care costs are rising, Medicareandmedicaid and The Washington Post and IBM will all see costs going up. The reason? They're all buying the same product.

There's also a practical reason Medicare and Medicaid's spending can't look too different from the private sector's: imagine a world in which a doctor gets paid $50 to see a Medicare patient and $150 to see a patient covered by Aetna. Which doctor is going to remain in the Medicare program? As Joe Newhouse puts it, "Part of the reason that the sustainable growth rate" -- which would have held Medicare's costs down -- "has not been sustainable politically is the need to keep Medicare rates within striking distance of commercial rates." Either everyone pays less or no one does.

But let's say you somehow managed to solve the cost problems in MedicareandMedicaid without solving it in the broader health-care system -- and, incidentally, I'd like to know how you did it -- America's health-care cost problem isn't solved. Washington has a bias towards problems that are "on-budget" for the federal government, and for good reason: Washington is where the federal government's budget gets written. But the budgets of businesses and households matter, too. If they get crushed by health-care costs, but Washington manages to escape, America is still in bad shape. "Thinking of it as a budget deficit problem misses the point," writes Jon Bernstein. "Shut down Medicare completely and you solve the budget deficit part of it, but you still have an important dysfunctional situation with regard to health care."

You can see the results in the graph atop this post. If health-care spending outpaces GDP growth by just two percentage points -- and it often beats it by much more than that -- the leftover income that Americans will have to spend on non-health care goods will drop sharply as the decades grind on. That will not make for a happy or stable country.

By Ezra Klein  | February 16, 2011; 2:00 PM ET
Categories:  Health Economics  
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Comments

"But the budgets of businesses and households matter, too."

More than that, these are the ONLY budgets that matter. The govt. can run deficits indefinitely (really, we're a fiat currency regime: http://heteconomist.com/?p=658) but households and firms cannot. They can go into debt or asset bubbles but then we get financial crashes like now.

Posted by: pdrub | February 16, 2011 2:18 PM | Report abuse

Healthcare spending is growing at a rate of 5 - 6% currently. This is outpacing GDP growth by a lot more than 2%.


Posted by: will12 | February 16, 2011 2:20 PM | Report abuse

You know what would really help with health care costs? Some sort of public option/Medicare for all.

You remember, that policy you and President Obama said you favored for exactly that reason, then abandoned?

Posted by: stonedone | February 16, 2011 2:40 PM | Report abuse

Excellent post, Ezra. Excellent! Though you have hinted at this analysis before, this is the first time you have been so explicit, at least to my memory.

That's why I've been urging you for months to hammer and hammer this point home:

MedicareandMedicaid are not the problem. Health-care costs whose increase continues to exceed the increase in GDP are the problem. The rise in MedicareandMedicaid costs are merely a SYMPTOM of the problem.

Until, and unless, we can properly identify the problem, we have no chance of solving it. No chance.

So please continue to repeat your analysis over and over and over and . . .

Next, work to force the issue into a narrow channel: the PRICES of health care services and goods. That not just the core of the problem, it's practically the whole problem.

We need to ask a simple question: Why do other advanced nations spend so much less per-capita on health care than we do?

The answer is equally simple: Other advanced nations all set health-care prices!

Posted by: fredbrack | February 16, 2011 2:48 PM | Report abuse

The answer is obvious. We need a more appropriate market based solution to health care.

Posted by: krazen1211 | February 16, 2011 2:58 PM | Report abuse

"The answer is obvious. We need a more appropriate market based solution to health care."

The current structure of the health care market is not amenable to market solutions owing (1) to the payment disconnect between health care consumers and providers, and (2) the sporadic nature of health care consumption. (2) is the reason that an insurance set up makes sense; (1) is the California Energy Crisis-style problem that exacerbates the problem. As long as health care recipients don't see actual prices for care they receive somehow reflected in their premiums, though, the current system won't get better. Never mind the fact that when you really need health care, price seldom seems like an object of consideration.

I think the end result of this will be some sort of price controls.

Posted by: arm3 | February 16, 2011 3:14 PM | Report abuse

"Market based solutions"? exactly the wrong approach. the reason healthcare costs are lower for Medicare and Medicaid is they don't have the profiteering and waste that define the "market based" private system.

But Klein is right, Medicare and Medicaid are jeopardized when insurers and other profiteers in healthcare are not reined in.

There is only one effective solution, which the rest of the world has figured out, a national system not based on greed. Save Medicare by updating and expanding it to cover everyone, and costs will be controlled. And we'll have a more humane system to boot.

Posted by: gschwartz1 | February 16, 2011 3:27 PM | Report abuse

Market-based solution to healthcare? Impossible. As long as the bottom line in business is profit, not good health for Americans, there will be no market-based solution.
Also, Medicare and Medicaid subsidized our for-profit nursing home system. There is no accountability for nursing homes that neglect our elders, causing preventable and expensive illnesses that put patients on a merry-go-round of hospital visits, tests, antibiotics, and ambulence rides. As long as we subsidize for-profit nursing homes and allow them to neglect patients with impunity, we'll never get Medicare and Medicaid under control.

http://www.nancypeske.com

Posted by: NKP1 | February 16, 2011 3:42 PM | Report abuse

Huh....so Ezra, you mean that the MORE government has gotten involved in funding health care over the past 50 years, the HIGHER health care costs have skyrocketed?

And the progressive solution, of course, is yet even MORE government involvement in our health care industry to solve the burgeoning costs that MORE government involvement created?

Talk about giving a cigarette-smoker cigars as the solution to quitting their bad habit....

Posted by: dbw1 | February 16, 2011 3:48 PM | Report abuse

""Market based solutions"? exactly the wrong approach. the reason healthcare costs are lower for Medicare and Medicaid is they don't have the profiteering and waste that define the "market based" private system."

Cost are lower because providers can make up the difference via private insurance, and because higher priced providers don't have to accept the public programs (remember the story Ezra had on here awhile back about the kid who died of an infected tooth - finding a provider who would take Medicaid was part of the problem).

And what about the estimated $83 billion in improper payments in 2009 for Medicaid and Medicare? What is that except waste and theft? Note that this doesn't include an estimate for Medicare part D.

This data was in wonkbook this morning. I used the cited 9.4% Medicaid improper payment rate on $373.9 billion of Medicaid expenditures.

http://voices.washingtonpost.com/ezra-klein/2011/02/wonkbook_gop_promises_their_bu.html#comments

"Save Medicare by updating and expanding it to cover everyone, and costs will be controlled. And we'll have a more humane system to boot."

If it's such a good idea, don't wait for the politicians. Design a universal health plan which accepts everyone who wants to enroll, funded however you like, get some funding and pitch it to consumers.

Posted by: justin84 | February 16, 2011 3:52 PM | Report abuse

It is far from true that "The right analogy, perhaps, is food prices. If the cost of food skyrockets, my grocery bills will go up, and so too will school-lunch programs go up."

The better analogy involves four parties: two bidders plus Uncle Sam and Brother Doc. Bidder A looks in his wallet and says "Brother Doc, I have $10. I'll give you $5 of it to pay for my medical needs." Bidder B looks in his wallet and finds nothing but turns to Uncle Sam and says "Uncle Sam, will you give Brother Doc $15 of Bidder A's money to pay for my medical needs." Brother Doc's services are now worth $15 -- simply because Uncle Sam has the power to irrationally inflate them.

Johnson's failed Medicaid program foisted that unfortunate scenario on the wallets of hard-working Americans: since the federal government is willing to pay top-dollar for indigent care, actual payers pay considerably more. The data has been available since the inception of Johnson's failed Medicaid program, so it's difficult to argue that Medicaid has been anything other than a driver of health care cost inflation.

In reality, Medicaid must be abolished -- completely and totally -- or the nation simply will not survive. Obviously, the nation survived for 150 years (and grew) without the crippling program... so we can live without it once again. Those who desire "universal" health care are more than welcome to start a fund and to CONTRIBUTE TO IT.

Posted by: rmgregory | February 16, 2011 4:05 PM | Report abuse

The debate over market-based solutions yields little but bamboozlement. Medicine has never been market based. When the number if physicians in an area increases, the fees per visit or procedure are raised to maintain income parity. This can defy supply and demand principles because practitioners comprise cartels, rather than a collections of independent agents. It was this way in the 1950's when my late father began his solo General Practice and it so continues. Add to this the explosion of complex and expensive procedures, diagnostics and therapeutics, sold by an industry that did not develop them but rather received them as gifts from NIH-funded research programs.

Posted by: wgowen | February 16, 2011 4:17 PM | Report abuse

@krazen1211 wrote:
"The answer is obvious. We need a more appropriate market based solution to health care."
.
Please tell us what market solution would insure 65 year olds who are coming off of their employer plans? It is either ridiculously expensive or they don't cover them. We had this argument before and the 'market' lost it handily because nobody wants grandma to be without health care.
.
If you do, speak up and show your true colors, but otherwise don't criticize without providing an alternative.

Posted by: rpixley220 | February 16, 2011 4:18 PM | Report abuse

"Please tell us what market solution would insure 65 year olds who are coming off of their employer plans? It is either ridiculously expensive or they don't cover them. We had this argument before and the 'market' lost it handily because nobody wants grandma to be without health care."

That's a special interest solution, not a market based one.

We know that some people care more about special interest than economic growth. That's fine. They can cling to their ideologies.

Posted by: krazen1211 | February 16, 2011 4:26 PM | Report abuse

"That's a special interest solution, not a market based one.

We know that some people care more about special interest than economic growth. That's fine. They can cling to their [humanity]."

Rixed your typo.

Posted by: arm3 | February 16, 2011 4:31 PM | Report abuse

The health-care debate is American Exceptionalism gone crazy with the heat. We need "market-based solutions" because that's the American Way.  Because we're different. We want to be different even where that doesn't mean better.

Practically every other country on earth with hot and cold running water has decent health care with sustainable cost (or a lot closer to it than we are). None, nada, zero, zilch do it with market-based solutions. And no one here who advocates that has ever come up with a viable proposal for making it work.

Posted by: jtmiller42 | February 16, 2011 4:32 PM | Report abuse

"The current structure of the health care market is not amenable to market solutions owing (1) to the payment disconnect between health care consumers and providers, and (2) the sporadic nature of health care consumption. "

Both of these are naturally a function of government foolishness.

Note the people on this blog, and of course the President, who advocate for mandatory insurance coverage for specifically non-sporadic consumption such as childbirth.

"As long as health care recipients don't see actual prices for care they receive somehow reflected in their premiums, though, the current system won't get better. Never mind the fact that when you really need health care, price seldom seems like an object of consideration."

Part 1 is true. Part 2 is not. The total cost of Emergency Room care in the United States is only about $84 billion, out of which a mere $30 billion or so is uncompensated.

To solve a fictional $30 billion problem, Democrats went out and passed a PPACA bill to tax and spend over $150 billion a year. What great arithmetic!

Posted by: krazen1211 | February 16, 2011 4:33 PM | Report abuse

Ouch! "Fixed". Boo, lack of an edit button.

Posted by: arm3 | February 16, 2011 4:33 PM | Report abuse

Ouch! "Fixed". Boo, lack of an edit button.

Posted by: arm3 | February 16, 2011 4:34 PM | Report abuse

"The health-care debate is American Exceptionalism gone crazy with the heat. We need "market-based solutions" because that's the American Way. Because we're different. We want to be different even where that doesn't mean better."

It is better. US wealth and economic growth has been better than the socialist europeans for 60 years now.

Posted by: krazen1211 | February 16, 2011 4:38 PM | Report abuse

"Johnson's failed Medicaid program foisted that unfortunate scenario on the wallets of hard-working Americans: since the federal government is willing to pay top-dollar for indigent care, actual payers pay considerably more. The data has been available since the inception of Johnson's failed Medicaid program, so it's difficult to argue that Medicaid has been anything other than a driver of health care cost inflation."


Yes sir. On top of that, Medicaid is in fact designed to be corporate welfare for Lyndon Johnson's desired industries.

We created a system where special interests can bleed the taxpayer and wonder why the taxpayers are bleeding.

It is no coincidence that the Social Security Act of 1965 is utterly unrivaled its its fure fiscal destruction. It was the atomic bomb of US legislation.

Posted by: krazen1211 | February 16, 2011 4:44 PM | Report abuse

The price paid to doctors is not really the problem, its the procedures that are allowed under Medicare/Medicaid/private insurance. There are many procedures performed by doctors and surgeons that have been proven to be medically useless but doctors are give wide latitude to continue to perform them, generally because even after conclusive studies are published it may take 20 years for current practitioners to come to accept the results or to just retire and be replaced a by a new generation of doctors that know better. The NIH can lead the way here by stating clearly what procedures are known to work and then medicare/medicaid would not pay for useless procedures. Patients who insist on getting the useless treatment would have to pay the whole bill. Private insurance would soon follow suit. This is just one item to be changed but its a big one.

Posted by: diggstech | February 16, 2011 4:48 PM | Report abuse

http://www.ncpa.org/pub/st284?pg=5

http://www.ppinys.org/reports/medicd99.htm


The reality of New York's Medicaid program:

Supporting Medicaid costs the average family of four in this state over $5,000 a year.


Our costs for Medicaid are well over twice the national average.


The two larger states, California and Texas, have almost three times our population—but combined, they spend only a bit more than New York on Medicaid.


Our costs are particularly out of line with the norm in spending on nursing homes and home health care.


What drives our costs? A program that is more generous to health-care providers than other states'.


New York's costs are so far out of line that the state sticks local governments with a substantial share—and that, in turn, is a major reason our property taxes are so high.

Posted by: krazen1211 | February 16, 2011 4:52 PM | Report abuse

What might happen is that we might have more number of insured; We will be successful in reducing the number of individuals without coverage but costs are higher, and the increasing costs will no longer be limited to health care but rates of other necessities will also increase.

Anne C
NY Health Insurer

Posted by: Anne_NYHI | February 16, 2011 4:52 PM | Report abuse

Both you and Paul Krugman need to realize there is a difference between health care and medical care. We have too much medical care and not enough health care.

Posted by: marcusnewberry | February 16, 2011 4:56 PM | Report abuse

As I say day after day there is nothing wrong with Social Security overall. There is no crisis, and a few minor adjustments will keep it solvent for the financially predictable future (which I consider about 20 years, anything longer than that is Nostradamus stuff).

Now health care is a horse of a different color!

Posted by: johnmarshall5446 | February 16, 2011 5:07 PM | Report abuse

"Medicine has never been market based. When the number if physicians in an area increases, the fees per visit or procedure are raised to maintain income parity."

Thats exactly why you need a market. In no other industry do you get a surge in new providers and at the same time providers charge higher fees. It's because the price mechanism was destroyed by comprehensive insurance.

Posted by: justin84 | February 16, 2011 5:18 PM | Report abuse

One important fact missing from this analysis is that there is waste, fraud and abuse in Medicare and Medicaid. There is probably lot of fraudulent billing going one and unnecessary tests being conducted to pad income of many hospitals, especially small privately operated clinics. Addressing this can bring the costs of the programs down considerably.

The move to make payments based on outcomes and not number of individual tests and procedures should also make it less expensive. The ACA is supposed to address this, if given a chance to be implemented in full.

Peace!

Posted by: ns3k | February 16, 2011 5:28 PM | Report abuse

"...price mechanism was destroyed by comprehensive insurance."

Defiance of supply and demand economics long preceded the birth of comprehensive insurance. It was not so much an issue because a person's bad luck with health did not reduce them to penury, as it often does today. And it's true that the NIH or the Academy of Medicine could pass judgment on effectiveness, and insurability, of procedures and drugs, but they would not survive the Death Panel blowback, which would be fueled and fanned by, guess who? Those whose oxen would be gored.

Posted by: wgowen | February 16, 2011 5:34 PM | Report abuse

capitation. Enough said

Posted by: visionbrkr | February 16, 2011 5:36 PM | Report abuse

"Practically every other country on earth with hot and cold running water has decent health care with sustainable cost (or a lot closer to it than we are). None, nada, zero, zilch do it with market-based solutions. And no one here who advocates that has ever come up with a viable proposal for making it work."

People who argue in favor of emergent systems rather than designed ones aren't going to have a plan you can point to.

The basic argument is:

1) People place a high value on health care
2) People will take necessary action to obtain what they value

Therefore, people will take necessary action to set up a health care system in lieu of any government action.

Posted by: justin84 | February 16, 2011 5:42 PM | Report abuse

What we need to do is link the Medicare tax rate and levels of co-pays and deductibles in Medicare to health measurements that are good predictors of a someone's likelihood of using medical services.

Car insurance companies alter their premiums based on the number of tickets and accidents. Shouldn't Uncle Same do something similar for taxes paid for Medical care?

Now taxpayers will have an immediate, measurable financial incentive to improve their diets and exercise more. The massive change in behavior induced by these financial incentives will LOWER MEDICAL COSTS!

That's how you apply economic theory to solving the problem of runaway health insurance costs.

The next best thing to do is to repeal the tax deductibility of employer-provided health insurance. We need to have the fewest number of transactions possible mediated through an insurance company.

The third best thing is to allow consumers to purchase medical plans in any other state. That will undermine the ridiculous state laws requiring insurance plans to cover ailments that consumers don't want, yet drives up costs of insurance. My wife and I are over 50. We don't want coverage for pregnancy, psychiatric care or alcoholism, but in CA we still have to pay for it.

I love it when the Left gets outraged about market failures in health insurance markets when government laws, regulations, and tax incentives have screwed things up.

Posted by: ElGipper | February 16, 2011 5:56 PM | Report abuse

"Defiance of supply and demand economics long preceded the birth of comprehensive insurance. It was not so much an issue because a person's bad luck with health did not reduce them to penury, as it often does today."

Are you really claiming that hundreds of thousands of individual practicioners have a stronger cartel than OPEC? I don't buy it. And the only time period we have to look back to had very moderate prices.

In any case, I don't see how you get 17% of (a very large) GDP going to health care without comprehensive third party payment.

Posted by: justin84 | February 16, 2011 5:58 PM | Report abuse

The problem is Medicare and Medicaid.


Here are the actual numbers.

http://usgovernmentspending.com/y...#usgs30210
http://www.usgovernmentrevenue.co...ml#usgs302

In 1967 spending under Lyndon Johnson's Medicare/Medicaid program totalled $4.7 billion while designated tax revenues under the legislation signed in 1965 totalled $2.6 billion.

By 1968 spending under Medicare/Medicaid ballooned to $7.3 trillion while tax revenues under the same legislation only $3.5 billion.

And so the deficits began.

Posted by: krazen1211 | February 16, 2011 6:46 PM | Report abuse

"imagine a world in which a doctor gets paid $50 to see a Medicare patient and $150 to see a patient covered by Aetna."

I prefer to imagine a world where the doctor gets paid $50 to see either. It is a matter of fact that our doctors are overpaid both relative to other professions and to their international peers (yes, even after factoring in loans and insurance), by fairly wide margins. This excess pay is a result of the AMA cartel that restricts the number of new doctors and thereby keeping wages above market. Doctors don't need to bring in $200k+ in take home pay to justify their educations, nor to attract enough people to the profession.

Posted by: brickcha | February 16, 2011 6:55 PM | Report abuse

Their is a factor that some people tend to overlook. The baby boomers. They represent a large chunk of the American population and they are aging. Its not their fault, its not our fault. Just a simple fact. Now and in the future, that will be a factor with the rise in health care costs. So whoever tackles this situation I hope they have that in mind.

I supported the public option. Simple economics tells me that, if you add a competitor to an industry and it is offering lower prices, the others will have to drop their rates to compete. I know its not exactly that simple. Just a thought.

Posted by: hson8118 | February 16, 2011 8:05 PM | Report abuse

If you want to know why we spend so much more for healthcare here in the US than anywhere else, just look at what primary care doctors and specialists earn here versus anywhere else in the world.

Then compare what drug companies charge for the same drugs here versus anywhere else in the world.

These special interests are the fundamental reason why healthcare is so much more expensive - not insurance companies, Medicaid or Medicare, which are only methods of healthcare financing.

The provider organizations (AMA in particular) and the drug lobbyists are determined to protect their clients' pocketbooks regardless of the impact this has on the health of the country or its citizens. If you want a market based system stop the AMA from limiting the supply of doctors in the country, and enable a TRUE free market in the form of reimportation of drugs.

Posted by: sambam | February 16, 2011 8:19 PM | Report abuse

Medicare for all with strong price controls , its the only solution I can see making a difference.
Let the private insurers sell private plans that people can use to supplement the basic plan offered .

Posted by: sligowoman | February 16, 2011 8:37 PM | Report abuse

we could save $$$ Billions in Medicare Health Costs if the Congresspeople and Obama would Stop caving into Big Pharma.

I have contacted the WH, Congress, Medicare and No One can explain to me why my mother’s Asthma Inhaler is priced at $320.00 for US Consumers - but the same inhaler is only $90 in Canada - and less than $70 in France.

So Repugs taking Lobbying money from Big Pharma - and "pretending" to care about deficits - are a big joke.

Posted by: fair001 | February 16, 2011 9:12 PM | Report abuse

As many have said, yes Ezra this is the crux of the problem. You talked in the past is true, but then we get lost in the political fight.

Atul Gawande was supposed to shed light on it and provide a definite answer for this. May I failed to notice, but there does not seem to be definite answers to this question; or at least consensus among common people.

Couple of points are obvious:

1. As our average and median 'age' advances we need more service. Total money spent is bound to increase. (Question is proportionally 'unit cost' should come down. But it is hopelessly difficult to define 'unit cost' for Health Care unless Ezra provides details of some elegant research. With 12 thousands, I guess, procedures, thousands of equipments & drugs; it is hard to define unit cost. But then again what are computers for?)

2. The disconnect between end consumer and payer is really bad. It does not have to be necessarily break the current employer sponsored health insurance (which 2/3 Americans use). We can have 'points' and 'incentives' for individual consumer to shop for cheaper ways and so on. (Exchanges would do so in some manner, but GOP does not want that.)

Question is what are the other components contributing to ever increasing costs? What is the proportion of each of these components so which are the top 4 or 5 we got to address collectively?

Posted by: umesh409 | February 16, 2011 9:14 PM | Report abuse

What you say is true. But, if precedent holds, reforms in the way Medicare does business will be implemented by the private sector. Also, the growth in Medicare expenses is far out -pacing the private sector. It's the elderly who for the most part who are the sickest and the costliest.

Posted by: Kreisberg | February 16, 2011 9:31 PM | Report abuse

Increasing the numbers of doctors causes costs to go up, not down. Doctors dont compete against each other in a market because there is no free market for healthcare since Medicare/Medicaid entered the system in 1965.

Medicare pays the same to doctors regardless of whether there are 50,000 doctors within a city or only 5 doctors within a city.

The AMA does not control the supply of doctors by the way. Thats done by the LCME and the federal government. Residency training is funded by the federal govt, and in 1997 residency slots were capped for the balanced budget amendment.

The number of medical schools has skyrocketed over the last 20 years (over 15 new DO programs and 20 new MD programs) yet producing more doctors hasnt done a thing to lower costs for the reasons I stated above. The USA already has a surplus of doctors and doesnt need anymore -- we have too many specialists ordering all kinds of expensive tests. Now we have 10 doctors treating a single complex patient whereas 20 years ago that number would have been 2 or 3 at the most.

P.S. Ezra is obviously ignorant on this issue; but NO private insurer pays 3 times what Medicare pays for the same procedure. At the most its 15-20% higher. All of the private insurers peg their reimbursement rates to what Medicare sets.

Posted by: platon201 | February 16, 2011 9:40 PM | Report abuse

Seems an odd conversation on this thread. I would agree with Ezra that it's health care costs. I don't think health care costs are driven by Medicare and/or Medicaid. Though you could argue that their existence facilitates private insurers "cherry-picking" of well patients to insure. One secret to doing that is the healthy worker effect - if you can work you are more likely to be healthy, imagine that.

We have a seriously broken system. As one of the other posters noted most reasonably advance country's manage to do this much better for less cost, better outcomes and more satisfied patients.

I've thought for years that someday we would need to get serious about this problem but its been about 30 years ...

Posted by: Pdard1 | February 16, 2011 9:50 PM | Report abuse

Yeah, it would have been helpful if you hadn't waited for Krugman to make this distinction. For the last two days since the budget proposal came down, all you've been doing is whining, with the rest of the commentariat, about how Obama wasn't bold enough to cut "entitlements" like "Social Security, Medicare, [and] Medicaid."
http://voices.washingtonpost.com/ezra-klein/2011/02/the_us_government_an_insurance.html

The most you did (2/14) was weakly assert that "Of this group, Social Security is in the best shape, and is by far the most efficient. It should be last on our list. Not, as it often seems to be, first."
http://voices.washingtonpost.com/ezra-klein/2011/02/2012_budget_no_fiscal_commissi.html

Oh, really? Because today you don't seem to think it should be cut at all. So which is it? Were you wrong before, or simply hedging? In the one case you owe your readers a correction for an honest mistake; in the other you owe them an apology for systemic error brought on by a desire to be mainstream first and truthful second [=cowardice].

At least have enough shame to ignore Krugman instead of pretending he wasn't calling you out, too.

Posted by: JohnCMulligan | February 16, 2011 11:04 PM | Report abuse


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Posted by: sharonpowell123 | February 17, 2011 2:06 AM | Report abuse

The purpose of insurance is to pool funds for the small risk of a large expense. Costs will not be contained as long as the funding of insurance, and costs of care, for individuals over a lifetime are split between Medicare, Medicaid and the private market. Costs for an individual from birth to death need to be aggregated, so interventions that improve health, reduce morbidity, and encourage healthier lifestyles and judicious use of services, can all be identified and implemented by patients, providers and payors. Pooling of funds to pay for the care needs to be more efficient and transparent. Health reform eliminates a major hole in the current system created by an essential fourth pool of the uninsured. This may help the cost curve compared to no reform, but further transformation will be needed to truly moderate the cost spiral.

Posted by: Lisefed | February 17, 2011 9:37 AM | Report abuse

--*Social Security is an accounting problem that we know how to solve.*--

Bernie Madoff had the exact same sort of "accounting problem".

Posted by: msoja | February 17, 2011 10:51 AM | Report abuse

--*Health-care costs are the product of a complicated, multifaceted system, and we don't know what to do about them.*--

Hugo Chavez hasn't a clue about the rampant inflation he causes year after year, either, but that doesn't mean the solutions aren't obvious to people who aren't hell bent on meddling and looting.

Posted by: msoja | February 17, 2011 11:02 AM | Report abuse

Those who argue for "free market" solutions to healthcare don't understand how healthcare works. I say that respectfully.

In a free market, both the seller and buyer have the option of walking away from the deal. And that's how prices get set along with supply and demand.

One and 10 women will get breast cancer. One out of 10! It has nothing to with anything except being a women - no other risk factors. Imagine if your are women and you feel a lump in your breast. In order to get the proper diagnosis, you need a physical examination, a radiograph, a biopsy, and then a pathologist (another doctor) to inspect the biopsy and provide a diagnosis. Even if the lump turns out not to be cancer, how does the average person negotiate prices in that system and would that middle aged women who probably has children and a family who loves her be willing to walk away because its too expensive. And what average family can afford to pay for a serious illness out of pocket anyway. They can't.

So we have to buy health insurance. Therefore the continued challenge will be how do we keep the cost inflation under control so that it remain affordable for everyone.

Posted by: rfjohnson77 | February 17, 2011 11:26 AM | Report abuse

We also know another fact. Doctors are UNDERPAID. Why do we know this. Primary care doctors and nurses are in short supply. People don't go to medical school because it requires one to put off income and rack up large debt to get through, not because they aren't smart enough, and there are other places to satisfy their ego; or they DO GO but instead go a more lucrative route afterwards. What they are really saying is that the reward isn't worth it. Remember, competition for people is market-wide. You can go get an engineering degree, then a law degree and make what a doctor makes and get the same professional respect and do it in far less time than getting an M.D. Point is, not only are costs going up, but in order to bring down costs, you can't pay doctors less. Another thing that I think is misplaced are "expensive exams." I say MORE. If full body scans were very common... they'd be a ubiquitous cheap commodity. Like some prescriptions. Every grocery and drug store has them, you can common ones for free at some grocery stores. And if non-invasive but highly informative exams were very cheap -relative to now- they would catch problems earlier. Which is less cost in the long run. So the gov't shouldn't be focused on REDUCING what a doctor can do or prescribe, it should be encouraging innovation to make it an "informed" commodity.

Posted by: NovaMike | February 17, 2011 12:21 PM | Report abuse

--*Those who argue for "free market" solutions to healthcare don't understand how healthcare works. I say that respectfully.*--

Those who argue for "government driven" solutions to health care don't understand economics. I say that pointedly.

Posted by: msoja | February 17, 2011 12:36 PM | Report abuse

"Even if the lump turns out not to be cancer, how does the average person negotiate prices in that system and would that middle aged women who probably has children and a family who loves her be willing to walk away because its too expensive."

You check prices (probably online or at worst by phone) and go with the cheapest one that also satisfies your other preferences (how soon you can get an appointment, recommendations, etc).

Just like any other purchase.

It's not about walking away from the purchase altogether. It's the ability to choose between providers. People need shelter too, but you don't need the government involved in the provision of it - the vast majority of people can figure that one out on their own, despite it being expensive.

It doesn't even necessarily have to be a consumer price, as long as prices and the concept of a strict budget are somewhere in the system. A nonprofit or charity hospital might provide some care free or at sharply discounted cost based on perceived need and availbility of services, but they'd have to balance their provision of health care with their ability to successfully raise funding.

Generations ago, there were fraternal associations which allowed members the option of signing up for inpatient treatments in the association's hospitals, but otherwise care would be paid for by the patient. These plans were killed by government tax and regulatory measures.

"So we have to buy health insurance."

It's nice to have - but not absolutely necessary, at least not in a society without third party payment ramping prices up. A free society would undoubtedly provide some charity care. There would probably be a market for health care loans too (e.g. a $75,000 5% 15 year loan would be $593.10/mo - high, but a family health insurance plan with comprehensive benefits is easily more than that).

Before you say that $75,000 loan as shockingly expensive, consider the following: if real per capita health care spending rises at just 2%/yr, then a typical person born in 2010 and living until 2090 will have over $1.5 million in 2010 dollars spent on his health care over his lifetime. Note that this growth rate is well below current projections.

If market driven healthcare reduces real per capita healthcare spending just 1% annually for the first 5 years and then grow just 1% thereafter, lifetime health expenditures would be cut nearly in half.

It is well known that the primary determinant of health is behavior, not insurance or access to health care. If the direct exposure of costs convinces enough people to lead healthier lifestyles, you could have a sharp increase in health at the same time as a sharp decrease in health care utilization, along with lower health care prices.

Posted by: justin84 | February 17, 2011 4:04 PM | Report abuse

justin84, it used to be that way. The average life expectancy was also much, much lower.

Posted by: arm3 | February 18, 2011 12:53 PM | Report abuse

Excellent title, but after that the article drops the ball. Reducing the costs and providing health care for all has to be the goal. We need to start here to discuss overall solutions. The solutions involve market base decisions (incentives are always necessary) more medical training (the AMA destroyed the US medical system with their greed) with lower tier decisions, etc.

Unfortunately or fortunately, the future for the masses may well be as the republicans want..... Walmart clinical.... importing cheaper labor buying pharma in bulk and forcing down prices of pharmaceuticals, while we are unable to make a coherent health care program.

Posted by: concerneddemo | February 22, 2011 8:47 AM | Report abuse

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