Archive for the ‘Health Care’ Category

Health care drives federal spending.

For all of the discussion regarding the expected, astronomical growth of government in the coming decades, America’s fiscal outlook is predicated mostly upon one aspect of the budget: health care.  The above graph (originally found here) indicates that by 2050, federal health programs will cost more than every other function of the federal government (other than paying off our debt!) combined.  As Yuval Levin puts it, “The federal government will basically be a health insurer with some unusual side ventures like an army and a navy.”

Admittedly the graph is somewhat misleading on first glance.  Federal spending as a percentage of GDP is sky high right now, its present total surpassed only during World War II when we were busy killing Nazis and saving the world from real Fascists, not “fascists.”  Thus the mild decrease in non-health federal spending as a portion of our economy doesn’t keep the enormous size of current federal spending in perspective.

Presenting the net growth (in this case, the growth is negative) of all non-health federal spending in relation to the economy’s size masks the fact that some specific programs are projected to grow substantially beyond their current share of our economy.  At the same time, other programs, such as counter-cyclical “safety net” programs, will decrease in relative cost when the economy grows and employment increases.  However, the graph allows the naive individual to claim that everything besides health care as a share of our economy is shrinking.  But it’s not.  Some programs will grow, some programs will shrink.

Matt Yglesias presents our options (in quite biased terms) in light of the expected growth of health care costs:

1. Higher taxes.
2. Systematic change to the cost structure of American health care.
3. Abandonment of the government’s commitment to provide health care to the poor and the elderly.

The graph in discussion only shows how significantly America’s public health insurance programs promote deficits, debt, and federal spending.  Both parties can reasonably agree to shrinking health care spending, if only to a slight extent according to some, but the real problems are of public choice and ideology, not facts.

Arnold Kling outlines his “two-tier” health insurance system,

1. Currently, government programs for health care involve open-ended commitments to reimburse doctors for whatever services they deem appropriate. This is too expensive (although you can see why key constituencies would find it popular).

2. The government needs to get control of its health care budget. It is likely to do this by reducing its reimbursement for discretionary health care services, such as diagnostic screening, futile late-stage care, and other procedures that have been found to have high costs and low benefits.

3. Regardless of how government draws the line between necessary procedures and discretionary procedures, it will not allow people to be deprived of necessary procedures for lack of money. Nor will it prevent people who can afford discretionary services from obtaining them using their own resources.

4. Hence, we will see a two-tier system. Necessary procedures will be available to all (which is pretty much true today, through the proverbial emergency room). Beyond that, wealthier people will be able to purchase more costly discretionary medical services, just as they can purchase fancier cars or more expensive food.

To those who study health policy, and even to those who only understand the basics of the American health care system (ignoring the tin foil hat types), this is indeed a “blinding glimpse of the obvious.”

What Kling fails to acknowledge is that we already have a two-tier health care system and that while the PPACA changes some things, the beast remains. In general, Medicaid is for the poor, Medicare is for the formerly working elderly, and private insurance is for the middle and upper classes with prestigious jobs or high incomes.

As much as Obama likely idealizes a complete health care overhaul, Medicaid and the various state-only plans for specific poor populations will continue to generally provide less coverage than Gold and Platinum Medicare plans.  In turn, these will offer substantially less coverage than many private insurance plans. Medicaid participants will continue to be less affluent than private health insurance consumers.  Those with high-paying jobs and post-secondary education degrees will be far more likely to receive or purchase private insurance with coverage above and beyond the coverage of Medicare and Medicaid.

My disagreement with Kling comes from his point #1.  Despite his allusion to the grandeur and limitless supply of public health insurance subsidization, reality’s contrast is stark.  Medicaid frankly isn’t that great for most people.  Medicare Part A isn’t that great either.  This is because each is in fact not a black hole of money and endless coverage.  We ration via limits on services, deductibles, and blatant limits on coverage (for example, catastrophic coverage is different than long-term care).

What we ultimately will see with the PPACA is more of the same: a two-tier system in which the poor largely depend upon Medicaid and state health insurance plans while the middle and upper classes receive better treatment with better Medicare plan options with peripheral private health insurance coverage or employer-provided health insurance plans. The PPACA is a plan to make John Rawls proud: the poor will continue to receive less health coverage than the rich, yet even the poorest will receive better coverage than before. That is, until we perhaps realize that we cannot afford our promises and must decide how we will truly ration health care.

Health care market failures or a lack of demand?  You decide.  From Mark Perry:

“Next time you want a blood test, you could get it at a strip mall. A store-front lab firm is now open in Plymouth. It is the first business of its kind in Minnesota, but it will not be the last.

53-year-old Elaine Warren came to Any Lab Test Now to get her cholesterol checked. “I had an annual exam. It was up just a little bit so I thought I’m going get ahead of the game,” says Warren. Her insurance covered her annual exam back in January, but to have her cholesterol checked now at her regular clinic would cost her $57 for the test, and a $45 co-pay for a total of $102. Her visit to Any Lab Test Now cost her $49. She was told she would get her results in about two days.

Too often we underestimate the power of markets.  If this business proves successful, I could see this model spreading quickly for those looking to cut their health care costs.  Even if the business fails due to an unreliable product, regulations that do not allow it to effectively compete on price with other care providers, and/or limited access to important markets.

Unfortunately, demand for such business is artificially suppressed because publicly subsidized health care creates a moral hazard by incentivizing the pursuit of convenience, customer service, etc. disproportionate to each quality’s natural, marginal utility.

For example:  Suppose a complete stranger comes up to you one day, informs you that he is a multibillionaire, and tells you that he will pay for any health care costs you ever incur.  Because your health care carries no monetary cost, you do not care about price as much as you otherwise would when shopping for health care.  Meanwhile, the other characteristics of health care becomes more valuable to you.  This drives you to more often pursue costly treatments featuring great customer service, aesthetically pleasing offices, or whose marginal benefit decreases dramatically with increases in price.

Thus Any Lab Test Now is more prone to fail, despite providing great value within a free market, because consumers are desensitized to price discrepancies due to government intervention in health insurance markets.