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Healthcare on 4 Napkins.
August 26, 2009 9:55 AM   Subscribe

The healthcare debate explained on the back of 4 napkins. Napkin 1: The health care equation. Napkin 2: It's not about health care. Napkin 3: The plans on the table. Napkin 4: What's it mean to me?
posted by lunit (95 comments total) 47 users marked this as a favorite

 
This. Is. Brilliant.
posted by haltingproblemsolved at 10:03 AM on August 26, 2009 [1 favorite]


That was actually quite helpful. (I've been trying to follow what's going on, but it's hard to sort out what's legitimate and what is just people shouting over one another like saying it louder is going to make it true.)
posted by sperose at 10:05 AM on August 26, 2009


I think you're leaving out the fact that B. HUSSEIN OSAMA WANTS TO KILL MY FAMILY AND CONVERT MY PETS TO ISLAM.
posted by Pope Guilty at 10:09 AM on August 26, 2009 [4 favorites]


I think it was Roger Ebert that said that any movie that can be summarized on a set of fast food soft drink cups isn't worth seeing.
posted by Confess, Fletch at 10:12 AM on August 26, 2009 [1 favorite]


It's actually around 50 napkins.
posted by brain_drain at 10:14 AM on August 26, 2009 [20 favorites]


Great post, thanks!
posted by Kwine at 10:14 AM on August 26, 2009


This is a link to the the "napkins" in slide show format. It's a lot slicker that way, I think. The default presentation in the OP with the comments on each slide is ugly.
posted by Perplexity at 10:16 AM on August 26, 2009 [2 favorites]


By "4 napkins" he means "35 powerpoint slides with colorful drawings".
posted by Nelson at 10:16 AM on August 26, 2009 [6 favorites]


Oops, dammit. That was a link to the first 1 (really 14). Here's a link to all 4 (51): http://www.slideshare.net/danroam/healthcare-napkins-all
posted by Perplexity at 10:17 AM on August 26, 2009 [2 favorites]


Oops, Perplexity's link demonstrates that there's 14 slides just for napkin 1. Agreed, the slideshow works better when presented as a slideshow.

I'm sorry to be snarky, this stuff matters. What really kills me is how bad the Democrats are at presenting this stuff themselves.
posted by Nelson at 10:18 AM on August 26, 2009 [2 favorites]


The whole health insurance reform debate has struck me as doubly farcical. The first thing is the whole right-wing assault on any reform as being socialized medicine when in fact the whole thrust of the Obama plan has been to explicitly move away from single-payer. The second thing is that Obama's triangulation has effectively disabled the ability of his coalition to mobilize any kind of response. It turns out that this is a pitfall of being a centrist – no one actually wants your compromise enough to fight for it.

All of which is a shame, because the debate should be one that a powerful single-payer coalition could win.
posted by graymouser at 10:19 AM on August 26, 2009 [3 favorites]


These drawings do a great job of covering the important tissues.
posted by abc123xyzinfinity at 10:24 AM on August 26, 2009 [3 favorites]


There's a few things on Napkin 4 that don't track with my understanding of how the bills of under consideration will pay for themselves. I think it's a bit misleading to say that people who are currently covered by employer-based insurance will pay more money if reform passes--that may be true if one proposed method of paying for reform passes (starting to tax health employer-provided health benefits, which currently are all tax-free), but I think that proposal doesn't have a lot of traction right now. The proposal for a 1.5% "surtax" on the wealthy has certainly gotten the most press (it's the method proposed by the House), and if that's the way that reform is paid for then the vast, vast majority of people with employer-based insurance won't see their taxes change at all.

I suppose there's a separate question about whether people would have to pay higher premiums (or at least higher than they would had health reform not passed). It's definitely not clear that would be the case--in fact, I'd guess that premiums would actually go down for people in employer-based plans, because it's typically the younger and healthier workers who choose to turn down employer-offered coverage, and bringing those people into the company's risk pool lowers total costs per person.

Anyway. I think this is a great idea, and perhaps it's just that I'm a bit too close to the subject so little errors seem to loom large (or too far away from the actual legislation so I'm not aware of any existing proposals that do anything like what is suggested in #4), but there's a reason that Dems are having such a hard time explaining this: it's really complicated stuff, and very easy to get wrong.
posted by iminurmefi at 10:26 AM on August 26, 2009 [2 favorites]


I THINK I WILL BE BETTER OFF SHOUTING.

thinking is dangerous
posted by solipsophistocracy at 10:32 AM on August 26, 2009


Republicans shouldn't have to deal with lefty intellectuals who can't explain everything they need to know on one napkin! Four is too many! And more than four is almost the size of their healthcare bill.

Isn't just like those lih-buh-ruls to promise us four napkins, and then leave us holding the bag for all their extra drawings!

Drill, baby, drill!
posted by markkraft at 10:33 AM on August 26, 2009


Was I misled into believing that one of the major parts of all this reform was to remove layer after layer of administrative costs on both the provider and insurance side of the equation, which would then bring costs down for the consumer in the middle? I thought that was one of the major "features" of this whole idea -- the savings in the shuffling of paperwork should help pay for the 50 million unenrolled and STILL help out the average Joe's pocketbook.
posted by hippybear at 10:33 AM on August 26, 2009


I wish there were a napkin #5, where he goes into the misconceptions.
posted by EmpressCallipygos at 10:40 AM on August 26, 2009


What about:
HEALTHCARE=SOCIALISM
OBAMA=TERRORISM
INSURANCE=FREEDOM
HEALTH=MONEY
DEATH=LIFE
I didn't see that part.
posted by blue_beetle at 10:41 AM on August 26, 2009 [2 favorites]


Hippybear, that's the long-run. In the shorter run, the savings won't be immediately apparent, as there's tremendous inertia in getting anyone to change even their bank accounts. That, and government/non-profit co-ops will see participation by those shafted by the insurance companies first, rather than the healthy folks, so the insurance companies may continue to rake in profits that could otherwise take care of people.

That's one of the reasons why the single-payer system is so appealing. Simply flip the switch one day so that the revenues (payroll taxes, maybe?) and the benefits happen at the same time.
posted by explosion at 10:42 AM on August 26, 2009


lih-buh-ruls

Not to derail too much, but what's the deal with this? I don't understand who or what it's mocking. Isn't this basically how "liberals" is pronounced?
posted by brain_drain at 10:43 AM on August 26, 2009 [1 favorite]


The napkin concept for delivery is not without merit. Most red-state/Republican/conservative (pick your imperfect terminology at will) ideals can be expressed on a bumper sticker.

"SHE'S* A CHILD, NOT A CHOICE" versus "THIRD TRIMESTER ABORTIONS WHEN THE FETUS IS PROBABLY VIABLE SHOULD ONLY BE RESERVED FOR SITUATIONS OF EXTREME MENTAL DURESS OR SEVERE HEALTH RISK."

"KERRY / FONDA '04" versus, well, it would probably take a couple of paragraphs to get that one out.

"SUPPORT OUR TROOPS" versus "WE COULD PROBABLY KEEP OUR TROOPS SAFER IF WE DIDN'T SEND THEM INTO A COUNTRY WHERE THEY WERE NOT PARTICULARLY WELCOME, AND, WHILE WE'RE AT IT, COULD WE PLEASE NOT HAVE THEM COMMIT HUMAN RIGHTS ABUSES IN OUR NAME"

"YOU CAN HAVE MY GUN WHEN YOU PRY IT FROM MY COLD DEAD HANDS" is long, but compare it to "WHILE THERE IS SOME DEBATE AS TO WHAT THE FOUNDERS MEANT IN THE SECOND AMENDMENT, IT'S NOT COMPLETELY INADVISABLE TO MAKE PEOPLE WAIT SAY A WEEK BEFORE THEY GET A GUN, AND HOW MANY PEOPLE ACTUALLY NEED ARMOR-PIERCING ROUNDS EXACTLY?"

The left could use more careful distillation of its thought into pithy phrases, simple icons, and sticker size declarations.

* Note that it is usually a she, versus a he. Count these sometime.
posted by adipocere at 10:46 AM on August 26, 2009 [14 favorites]


li-brəl, around here anyway. No one says all three syllables in these parts.
posted by explosion at 10:50 AM on August 26, 2009


hippybear, I would say the #1 biggest piece of the health care reform is the creation of a national marketplace where insurers compete to sell standardized policies to individuals. When people talk about reform will regulate insurers, it's usually talking about the rules they'll face inside this marketplace. Those reforms include:

*Not being allowed to deny anyone coverage for pre-existing conditions

*Not being allowed to "exclude" coverage for pre-existing conditions

*Outlawing recission (revoking an insurance policy due to mis-statements or lies on the application) except in cases of knowing fraud on the part of the applicant

*Not allowing insurers to vary the cost of insurance based on the health status of an applicant, only on things like geographic location and age (within certain limits)

*Being forced to sell a standardized benefit package (there may be several levels of these packages, e.g. bronze, silver, and gold) so consumers can compare apples-to-apples when purchasing insurance


Since the requirement that health insurance companies sell insurance to anyone who applies at a community rate could obviously lead to some gaming of the system (why buy insurance until you get sick and need it?) this new marketplace is paired with a mandate that everyone buys insurance. There are subsidies to help people afford it if they make below 300% of poverty. There's also been proposals to create a government-run plan to compete in this marketplace, which supporters hope "would keep the insurers honest," but who knows if that'll end up being in the final bill. While it's a good idea, it's definitely not the centerpiece of health insurance reform.

In the beginning only people who don't get offered coverage from their employer will be allowed to buy insurance from this special marketplace. There's some debate about whether it would be a good idea to move small employers in as well, and maybe bring everyone (even big employers) in at some point, but for now it's just people who currently buy insurance directly and those who have no insurance who would be affected.

There. That's health care reform, and I didn't even need 50 napkins. Score!
posted by iminurmefi at 10:52 AM on August 26, 2009 [4 favorites]


Was I misled into believing that one of the major parts of all this reform was to remove layer after layer of administrative costs on both the provider and insurance side of the equation...

I think the only thing currently alive that would actually address administrative costs has to do with transitioning doctors and hospitals to purely electronic and portable patient records. Just basically throw some technology at the problem and call it "solved."

As far as I know, there is absolutely nothing proposed that would address the ginormous administrative overhead (not to mention the ridiculous profit margins baked-in to their billings) found in the insurance side of things. 'Cause that would be communist, afterall...guvmint telling private companies how to run their business.

No...alas...there really is no actual plan to effectively reign-in costs, either on the provider side, and especially on the insurance side.
posted by Thorzdad at 10:53 AM on August 26, 2009


All of which is a shame, because the debate should be one that a powerful single-payer coalition could win.

To steal a line from a character in one of my 3-year old son's bedtime books, "But... There's no such thing!"

Me, I'm all for single-payer, and I know there's a lot more support for that approach than the media is willing to countenance, but the fact is still this: The support that exists is not enough.

And single-payer is an even harder sell than a compromise approach with a public plan option, because right or wrong, a lot of the biggest interests that have grudgingly lined up behind the idea of reform at all--whatever imperfect coalition there ever really was to be assembled on the pro-reform side, in other words--consider single-payer to be a deal breaker.

There's just far too much at stake financially, and far too many niche industries and small businesses that would suffer if overnight, a single payer option came to be. The benefits, of course, would probably still be enough to make up the difference in adverse economic impact in the long run, but political battles aren't fought in the long run, and it's present-day politics that have the power to scuttle reform efforts.

Hell, I guarantee that even staunch supporters of single-payer would demand a political price be paid if congress pushed through such a plan and it immediately caused a spike in unemployment and bankruptcies that directly led to further deterioration in the economy in the short term. Especially when we had to dip even further into deficit spending to fund the new system to make up for resulting losses in tax revenues.

A gradual, natural evolution toward single-payer is the only alternative that doesn't cause so much economic pain in the short term that it blows up and sets the cause back for decades, IMO. I understand how deeply unsatisfying that view may be, but I believe it's the reality.

Also, I agree with some of the comments on the napkins presentation: It's instructive to a point, but it glosses over some really big issues and it gets other wrong. For example, keeping medical costs down. Insurance companies really don't have much incentive to want that--they're ultimately spending your money after all, and their share of the haul of profits on the transaction is based on a percentage of what they pay. For example, why should an insurer object to paying $200 rather than $100 of your money to a medical service provider, if their cut of the transaction is 5% either way?
posted by saulgoodman at 10:55 AM on August 26, 2009 [2 favorites]


Argh, all of that didn't get to your original question. Will reform reduce paperwork and administrative overhead and make everything cheaper?

Nope.

It will create a national marketplace where insurers compete to cover people who can't buy insurance through their employers.

In the future there may be some further reforms on the health IT and paperwork side of things that would reduce administrative costs, but for now that's not really a piece of reform. (Someone may jump in a correct me here; I haven't read all 1,000 pages of the House bill, but I certainly haven't seen anything related to administrative simplification.) Most cost savings that the Administration is projecting are based on cutting out "unnecessary" medical treatment in Medicare, which will somehow affect doc's practice patterns. These different practice patterns will somehow migrate into the private insurance market (it's a bit hazy here; lots of private insurance companies follow Medicare in terms of how they pay for things so it's not inconceivable) and thus lower total medical costs in the system by cutting waste. Note that this waste doesn't have anything to do with the waste of hiring a bunch of billing experts at every hospital--it's the waste of (say) about 20% of all people being re-hospitalized within a few months at great expense each year because they catch hospital-acquired infections, or didn't get good discharge planning and never saw a doctor after being released, or didn't get any instructions on what medications to take after being discharged. That's where the hoped-for cost savings come from, in a very very simplified nutshell.
posted by iminurmefi at 11:01 AM on August 26, 2009


Four napkins!? tl;dr
posted by procrastination at 11:02 AM on August 26, 2009


Why does it declare the public option dead? The extant to which "conventional wisdom" has gotten ahead of legislative reality about this health care bill is ridiculous.

The freaking bill hasn't even been written yet, and the house progressives and Nancy Pelosi, the most powerful legislator in D.C., are saying that the public option is dead. Not that I am saying that it will definitely be in their but it is far from a done deal at this point.
posted by afu at 11:04 AM on August 26, 2009


The freaking bill hasn't even been written yet, and the house progressives and Nancy Pelosi, the most powerful legislator in D.C., are saying that the public option is dead.

That's NOT what they've said. They've said exactly the opposite, that they would not under any circumstances pass a bill in the house that didn't include the public option.
posted by saulgoodman at 11:07 AM on August 26, 2009 [3 favorites]


Jeez, I should have read the presentation on the plan itself--I read the other sections, but didn't look at that one. The actual plan part of the presentation is full of specious assertions.
posted by saulgoodman at 11:10 AM on August 26, 2009


I think it's li-buh-ruls because it more like "duh", and it sounds gay.

See also...
posted by markkraft at 11:13 AM on August 26, 2009


That's NOT what they've said. They've said exactly the opposite, that they would not under any circumstances pass a bill in the house that didn't include the public option.

Ack.It is late here, I meant the opposite of what I typed.
posted by afu at 11:16 AM on August 26, 2009


ah--i see what happened. happens to me all the time. funny how often the easiest mistake in the world is to get things exactly wrong.
posted by saulgoodman at 11:20 AM on August 26, 2009


I assumed it was lib-ruls, derisive tone included.

And yea, I'm deaf to the please of doctors and insurance companies - I keep hearing things like tort reform, but then when it gets passed, I don't hear about malpractice insurance rates going down (Texas is often the cited example). They keep coming up with boogeymen to point the finger at because they don't want it pointed at them.

I keep thinking things through in my head and single payer seems like the only logical result. Maybe its just a case of baby steps to get there.

Also, I was unaware that all current reforms were compulsory health care coverage. That I don't like but I understand why.

The bottom line is that we all pay for everyone's health care now - when the illegals, indigents and the poor go into the ER, they might not pay but the hospital isn't giving it away for free, we pay when we get our bills. So why not at least encourage people to find cheaper care through some sort of medical insurance and primary care or urgent care physician?
posted by SirOmega at 11:26 AM on August 26, 2009


The danger of explaining stuff this way is that most Americans will use the napkins to wipe the McNugget sauce off their chins before they get a chance to read them.
posted by bondcliff at 11:28 AM on August 26, 2009 [1 favorite]


My colleague Tony Jones and I have been through piles of research and enough whiteboard markers to get an elephant stoned.

The fact that I was just as furious about them using whiteboard markers to draw on napkins when that is CLEARLY NOT WHAT WHITEBOARD MARKERS ARE INTENDED FOR as I am about the state of the health care debate in the States says something about me and my love for stationery and office supplies. Something sick and terrible.
posted by Shepherd at 11:37 AM on August 26, 2009 [2 favorites]


Today (with the exception of Medicare), America has a purely business-driven insurance model.

Huh? Medicare isn't the only public health insurance. Medicaid, SCHIP, etc.
posted by Jaltcoh at 11:54 AM on August 26, 2009


not to mention the ridiculous profit margins baked-in to their billings

I don't know where this idea comes from, but the insurance companies' profit margins are not that high. You're doomed if that's where you want to try and wring a cost savings from. Here's a nice chart. (Note that in the chart, "HMOs" also includes PPOs and some other less-popular types of private insurance. It's sloppy, but the guy was really just showing off his leet Excel skillz.) You're talking about 2-3% of overall healthcare expenses being lost to profit.

If you prefer tables to charts, here's a more detailed analysis. Gross profit is about ~9%, but ~6% is lost to taxes so net is around 2-3%. In general, the insurance companies are not directly siphoning off all that much. They're taking in premiums at one end, paying them out the other less a fairly small cut. You could eliminate insurance company profits completely, either through nationalization or by forcing them into competition with zero-profit entities like co-ops or a government-run plan, and we're still going to be underwater with expenses.

Now, the "expenses" column also includes personnel expenses (including executive salaries), and I suppose maybe you could argue that there's some money to be wrung out there, especially if you nationalized and combined the insurance companies to eliminate redundancy through personnel cuts. But let's be blunt: in the middle of a recession, that's a no-go. Any plan that guts the insurance industry and puts enough people out on the street to realize a significant industrywide cost savings is not going to be politically feasible. And cutting executive salaries, as satisfying as that might be, isn't going to get you enough to make a dent; it's nothing more than theatrics.

If you want to reduce costs significantly, you have to look somewhere else. And that's where things get ugly, because you're going to run into opposition from doctors (especially those at the for-profit privately-owned hospitals, which often have much higher costs than non-profit hospitals). There was a great New Yorker article that addressed this, and was the subject of an FPP a while back.

I haven't seen any plan on the table that really seeks to address the high costs of treatment at the source (which would include the AMA's role as a supply cartel and the high salaries MDs get here in the States compared to in other Western countries, for-profit hospitals, pharmaceutical and medical-device company profits and pricing, etc.) besides an exeedingly lame electronic-medical-record proposal that, if it's anything like other attempts at computerizing records, will not realize any savings.

It's worth pointing out that EMR has a spectacularly high failure rate even compared to other electronic-records projects; this paper puts it at "consistently over 50%." Given that, at least in my personal experience, government-run IT projects have a failure rate far in excess of the private sector's, and they tend to get much further along before someone pulls the plug, odds of a successful nationwide EMR implementation that actually resulted in cost savings are exceedingly slim.
posted by Kadin2048 at 11:57 AM on August 26, 2009 [3 favorites]


Surely, this "my costs go up whatever happens" is bollocks:

One of the options has a government option that would not be allowed to make profits. This being the case, it should be cheaper than the private options. I mean, if you go from a system of three companies making $7.2 BILLION between them a year, to a system where (at least some of the) insurers are not allowed to make a profit, that money has to go somewhere. Sure, some will go to overhead, and more complete provision, but some must go toward lowering the price.

If all options made it more expensive, how could you couple that with making it mandatory, given that a huge proportion of the population already can't afford it...
posted by Dysk at 11:58 AM on August 26, 2009 [1 favorite]


Health care in America is a business. There are lots of people who make lots of money preventing people from getting sick, helping people who are sick, and insuring people for when we do get sick. When there are lots of people making money at anything, they're never going to agree on everything. Even those three simple terms -- "affordable", "quality" and "every" -- are inherently at conflict. But we all got the concept.

I think this is rather misrepresenting the business aspect - there is one group of interests that make money by selling their product "Medicine!" to people who find themselves to be sick. There is another group of interests that make their money by collecting it from people who may become sick, in exchange for the idea that this second group will cover the cost for "Medicine!" later. However, the second group doesn't HAVE to pay for all the "Medicine!" if they don't want to. This leads to the rather obvious conclusion that it's in the second group's best interest to NOT pay for "Medicine!" whenever they can. This is why basing that industry around business interests is FUCKING INSANE.
posted by FatherDagon at 11:58 AM on August 26, 2009 [5 favorites]


This seems like as good a time as any to link my favorite protest sign.
posted by Stylus Happenstance at 12:09 PM on August 26, 2009 [7 favorites]


Napkin 5: SUPERMAN.
posted by boo_radley at 12:19 PM on August 26, 2009 [3 favorites]


The plan with the public option is really the only one that exerts any kind of downward pricing pressure on the market.

It could do that a lot more effectively, IMO, if everyone were given access to the Health Exchange and through it the public plan options regardless of whether they had access to employer-based coverage or not. It would also help if businesses could opt for the public plans (which I don't think is currently the case is it?).

Either way, a public plan by being able to operate without concern for profit and by being able to exert the same kind of government-backed pressure that Medicare does to push service providers to control costs would gradually force health insurance providers to trim their own administrative costs to remain competitive.

What's the current state of things regarding employer mandates? Will they be required to offer plans under current proposals or will they simply have to pay a tax penalty if they fail to provide insurance? As long as any such tax penalty is less than it costs them currently to provide health insurance, it could still actually work out in their favor to move away from providing coverage, which as I understand it, would give their employees access to the exchange and the public options.

Health insurance profits might not be a big factor (I actually disagree with this claim, but let's skip it), but administrative costs definitely are. And one of the factors driving up those costs is the fact that there are over 1,000 insurance providers, each complicating the system and introducing inefficiency. And yet, at the same time, because the insurance markets are basically regional, despite the abundance of providers, most markets actually don't see any benefits from competition because they function as de facto monopolies, with only one or two major providers offering service.
posted by saulgoodman at 12:32 PM on August 26, 2009 [1 favorite]


It's worth pointing out that EMR has a spectacularly high failure rate even compared to other electronic-records projects; this paper puts it at "consistently over 50%.

EHR, not EMR.

And there's one system that works and has been very successful. VistA. Developed directly in concert with providers and staff, it works with the care flow, not against it. It is an amazing piece of work. It is, by a long shot, the most widely used system in the US. It is easily modifiable to the local site conditions. It is easily connected to other sites via BHIE. Nothing else on the market touches it. A good deal of additions have succesfully, and cleanly, been integrated -- one of the best is the imaging system, which talks to everyone with a DICOM based PACS on the imager -- read, a whole bunch of the world. Indeed, a number of tools have been built to get you off of broken systems and onto VistA.

Oh, and it's free and the code is public domain. Why?

Because you paid for it. VistA is the Veterans Health Information Systems and Technology Architecture, built by the VA to help make the VA the flat out best health care system in the country.

Built by the US Government, Department of Veterans Affairs. Because, in fact, the US Government is *spectacularly good* at building things that the private sector will not, because the economic incentives are completely different for the USG than they are for the private sector. And when we insist that the government act like the private sector, we throw away all the advantages the government has.

In interoperation, a for profit concern has a huge negative incentive against working with products other than it's own -- it's far better for them to lock you in to their system and make all the money off you, rather than let you buy, say, image storage from another vendor.

Governments aren't working on the profit motive, so that disincentive disappears. This is, in fact, why MetaFilter is here. The protocol that lets everyone connect to this lovely blue site was built as a research project of DARPA, and released it to everyone, free of charge. They then proved it worked by migrating ARPANET to it. And anyone who could read and follow the RFCs could implement it.

Anyone else with a protocol that could do half of what TCP could do was proprietary -- arguably, the Internet should have been built on PUP, not TCP/IP, but that means you would have had to negotiate with Xerox to implement it. TCP/IP, you just read the RFCs, followed them, and if you were following them close enough and could get packets onto the network, it worked. Everyone *could* connect, so everyone *did* connect, and by the time someone figured you might have been able to make a killing on Internetworking protocols, it was too late. TCP/IP was free, it worked, and if you used something else, nobody would talk to you.

Thank you, US Government. Thank you for TCP/IP, the Interstates, GEOS, the National Weather Service, GPS, and on, and on, and on.
posted by eriko at 12:36 PM on August 26, 2009 [40 favorites]


I made it up to napkin #2, slide 5 ("The White House should call it what it is: The Insurance War"). Seriously, America: you should go see someone. That kind of metaphor fixation is not healthy.
posted by PontifexPrimus at 12:41 PM on August 26, 2009 [1 favorite]


And yet America already has a socialized healthcare system.

Good enough for vets, but not for citizens?
posted by blue_beetle at 12:44 PM on August 26, 2009


If you prefer tables to charts, here's a more detailed analysis. Gross profit is about ~9%, but ~6% is lost to taxes so net is around 2-3%.

You have that backwards.
posted by ROU_Xenophobe at 12:47 PM on August 26, 2009


I was confused by the health care industry. Now I'm merely confused by how you describe 51 pictures as "four napkins." Thanks!
posted by rusty at 12:51 PM on August 26, 2009


i like this a lot. someone animate it and put it on youtubes.
posted by Potomac Avenue at 12:54 PM on August 26, 2009


Well, there was 51 of them, but I used 22 for my tears (I am sad about the current state of things), 14 to blow my nose (I'm sick and can't go see a doctor), 10 went in my purse (in case something happens and I need them), and I left one for the Healthcare Haters to fight over wiping their asses with.
posted by iamkimiam at 12:57 PM on August 26, 2009 [2 favorites]


And there's one system that works and has been very successful. VistA. Developed directly in concert with providers and staff, it works with the care flow, not against it.

Huh... funny you mention VistA. I recently did some analytical work with a company that played/plays a role in developing some of the core technology behind that product. Cool to see it come up here in this context.

posted by saulgoodman at 1:01 PM on August 26, 2009


The plan with the public option is really the only one that exerts any kind of downward pricing pressure on the market.

I don't think this is true. I mean, to some extent we can't really know this empirically, but I think there's a very persuasive argument to be made that setting up a well-functioning health insurance exchange with guaranteed-issue, community rating rules, and a standardized benefit package will force insurers to start competing on price, which they certainly don't do now. You're basically commoditizing health insurance, and that's historically been extremely effective at driving down prices, no matter what the product is.

The major factors that will determine how viciously insurance companies have to compete on price are: (1) whether the health insurance exchange is national or regional/state-based; (2) what proportion of all insured lives go into the exchange (if this continues to be limited to individuals for the forseeable future, it won't be terribly effective); and (3) whether the regulations allow for insurance companies to sell both in and out of the exchange. If we screw up the foundations of this reform by doing one of those three things wrong, then I think it won't matter a whit whether a public option is passed, because insurance companies won't have any incentive to compete with a government plan on price in the first place. They'll likely drop out of the exchange instead, and just keep pulling in the dough from large employer groups.

Insurance companies are never going to price their policies in the exchange lower than the prices they quote to big employer groups (that would be undercutting their own profits on most of their business). If we end up with regional health insurance exchanges, where only the uninsured and individually-insured are allowed to participate, it becomes a real question how hard insurance companies are going compete for (the very small number) of lives on that exchange, no matter who their competition is.

Anyway. I'd be very happy if all that we can get passed is a well-functioning national exchange that will replace, not supplement, the non-employer-based market. It's always possible to add a public option down the road, or to increase the subsidy from 300% FPL to 400% FPL, add in more lives (bringing in small employer groups and eventually large employer groups), or start to implement more reforms on the administrative side of things once we've got the foundation right. If what gets passed instead is regional exchanges where insurance companies can sell either in the exchange or out of it, then I think we've lost the larger battle--once that infrastructure gets set up, it's going to be very hard to pass any sort of legislation that would improve upon it much.
posted by iminurmefi at 1:11 PM on August 26, 2009


ROU_Xenophobe: "You have that backwards."

Actually I sort of bungled it worse than that. Here's where the data behind the graph comes from:
Note that pre-tax profits are about 9% of revenues [12,555 divided by135,553]. About 1/3 of the pre-tax already goes to the government in taxes; about 2/3’s (6% of revenues) drops through to the bottom line.
So, net profit is about 6% of revenue. But that's not what we're looking at on the graph, or what is really interesting in the context of healthcare in general; what we want is how that fits into the big picture. So, given that
U.S. health care expenditures are about $2.1 trillion (just over $7,000 per person). Of that, roughly half is “sourced” from the government via Medicare and Medicaid. Of the half that is private pay, about 2/3’s ($725 billion ) goes through health insurance companies...
So to get the percentage of overall healthcare expenses lost to insurance company profits, it's 6% of $725B—that's $43.5B—into $2100B, which is around 2%.

So that's where the 2% figure comes from. The point is, although 43 billion bucks seems like a big number, it's a pittance in the context of total healthcare expenses. Even if you squeezed the profits to zero, you're not going to realize enough savings to turn around a healthcare system that's hemorrhaging money at every possible opportunity.

The savings needs to come from somewhere else.
posted by Kadin2048 at 1:25 PM on August 26, 2009


that's actually a good point, iminurmefi. but adding a public insurer to act as a check on the industry and to put on additional pressure to push costs down quickly still seems more likely to generate immediate downward pressure on costs to me. plus, couldn't a pubic insurer serve to promote greater standardization and uniformity in billing and claims processing, which could help to reduce administrative costs? maybe a public insurer program could even offer third-party administrative services, like some private companies do (that's all wildly speculative stuff, obviously--does medicare ever provide such services now?). but i'm probably getting in a little over my head now.
posted by saulgoodman at 1:33 PM on August 26, 2009


I'll be honest, all of this economic competition and pricing talk is far above my head, but thank God there are people who really get it, and truly disagree with each other. The past month of town halls had made me a lot more cynical about the debate.
posted by Think_Long at 1:43 PM on August 26, 2009


How much money is spent finding ways to deny even legitimate claims for as long as possible?
posted by R_Nebblesworth at 1:52 PM on August 26, 2009


4 napkins? nothing to sneeze at. We (citizens) lost out when they dumped--Obama, quitter--one payer option. The insurance industry now swoops in and does their thing, and we are back to where we began. Why is it that just about all the nations in the industrialized world (two exceptions give mixed options) can have single payer and it works, despite the noise of socialism and big govt etc etc?
posted by Postroad at 2:05 PM on August 26, 2009


Kadin2048 wrote:
So that's where the 2% figure comes from. The point is, although 43 billion bucks seems like a big number, it's a pittance in the context of total healthcare expenses. Even if you squeezed the profits to zero, you're not going to realize enough savings to turn around a healthcare system that's hemorrhaging money at every possible opportunity.

The savings needs to come from somewhere else.


You seem to forget that one of the primary goals of any profit-making entity is to make it look like they make far less money than they really do (legally!) so as to reduce tax liability.

That said, it's not just profit that is (part of) the problem, it's the massive overhead in private insurance that Medicare seems not to share. It's the immense burden placed on doctors who have to deal with the morass of paperwork, it's the malpractice insurance that keeps going up and up and up despite the lack of an increase in payouts to support it.

While insurance companies are not the entire problem, doctors who practice in ways designed to increase their profit on side businesses do their fair share, they are responsible for a vast portion of the waste in our health care system.
posted by wierdo at 2:20 PM on August 26, 2009 [1 favorite]


but adding a public insurer to act as a check on the industry and to put on additional pressure to push costs down quickly still seems more likely to generate immediate downward pressure on costs to me. plus, couldn't a pubic insurer serve to promote greater standardization and uniformity in billing and claims processing, which could help to reduce administrative costs?

I think it's possible that a public or co-op insurer could do this, but frankly the private insurers run pretty lean operations on the administrative end; unless you can somehow make a lot of that overhead redundant, I think you're unlikely to be able to do it much cheaper than they already are.

Where I do think you could get some significant cost savings is by allowing the various insurance companies to compete nationally, instead of just within highly fragmented state markets. There are a surprising number of insurance companies but only a very few typically compete in any one market. As anyone who's shopped for broadband internet access recently can tell you, sometimes having an entrenched duopoly doesn't feel much better than being under a monopoly, and often insurance is dominated in a state by one or two big players.

If you actually created a regulated national market that all the regional players had access to, you might see some cost decreases as they actually started to compete on price. (Of course, what you'd also see is companies buying each other out, or eliminating/consolidating offices in various states in order to streamline operations. Essentially it would be what I discussed earlier as a "no-go". But what is a total deal-breaker when done by the government—firing a whole lot of employees—might be more palatable when done by private industry as just part of business.)

This has been tossed around in some proposals that I've read, but it always seems to get watered down to the point of uselesness, e.g. by not giving people who are in employer-sponsored plans access, which would make it a lot less attractive for companies to participate. For it to work you need to have a lot of buyers and a lot of providers all buying and selling in the same place, with minimum standards and maybe some form of standardized advertising or disclosures (like a Monroney label for insurance). If it's done piecemeal or if only a small segment of consumers have access, then the products offered there probably won't be very good. The insurance companies aren't going to fall over themselves doing all sorts of cost cutting if they're principally still engaged in state-level markets rather than a single nationwide one.
posted by Kadin2048 at 2:22 PM on August 26, 2009


plus, couldn't a public insurer serve to promote greater standardization and uniformity in billing and claims processing, which could help to reduce administrative costs? maybe a public insurer program could even offer third-party administrative services, like some private companies do (that's all wildly speculative stuff, obviously--does medicare ever provide such services now?).

I'm not sure the mechanism by which this would happen: what's the incentive for every insurance company to start copying the claims system of the public insurer? If there was any incentive to do so, most insurance companies would have already done it with Medicare, and we haven't really seen that happen. There's really no incentive for insurers to all start using one billing form, because hospitals and doctors mostly just have to eat the cost of hiring all those billing techs to submit a different form to each insurance carrier. Technically the overhead cost does come through in higher medical costs for everyone, but any given insurer who gave up their proprietary billing forms and moved to a "common" form (like the ones Medicare uses, which are all free and publicly available) wouldn't see the savings directly: the savings would accrue across-the-board, to their competitors as well. It's a bit like the prisoner's dilemma, where there's no incentive for any individual company to act unless everyone acts together.

This is, of course, where the government could come in and (for instance) mandate 5 years down the road that all carriers use a common billing form for insurance products offered through an exchange. If a carrier had to use it for one product it may be likely that they'd use it for all their products, and we could get to standardized billing that way. But the mere existence of a public plan wouldn't shift all carriers to standardize billing & claims processing, because if they were going to do that they would have already with Medicare.
posted by iminurmefi at 2:43 PM on August 26, 2009


These slides are about as valuable as the napkins they're written on. HMOs give us all a hard time and I'd like to see them better regulated, but the reason doctors and hospitals hate them too is that they bargain five times as hard with health care providers as they do with us. Most of their efforts are devoted to forcing health care providers to charge less: we only see a little of that when we have to deal with claims.

It's the doctors who say: "Your money or your life, I've got a vacation home in Aspen to build." HMOs are the ones saying: "Five MRIs? Give me a break: we're only paying for one unless you can show that the extra ones are necessary."

You don't trust your mechanic to give you an honest estimate, do you? Why would you trust your doctor? And that's why health insurance companies deserve to profit: they're reducing costs on the producer side of things, the same way your auto insurance company talks the mechanic down from his absurd hourly rates or outrageous overhauls.

The major factors that will determine how viciously insurance companies have to compete on price are:

I think you've missed -the- key factor, which is whether insurance companies have to compete in 50 different state exchanges or in a single national exchange. I've seen a couple of economists claim that most states are near-monopolies, or duopoloies at best. Getting rid of all the provincial state rules for what must be covered that prevent real state-to-state competition and comparison shopping would cut administrative costs and shave profit margins to the bone.
posted by anotherpanacea at 2:48 PM on August 26, 2009


Ack. Kadin2048 beat me to the punch on the national insurance market issue.
posted by anotherpanacea at 2:51 PM on August 26, 2009


That said, it's not just profit that is (part of) the problem, it's the massive overhead in private insurance that Medicare seems not to share.

Yeah, does the 2-3% profit include the $124.8 million the then-head of my insurance company, United Healthcare, made in 2005 alone? Because if it doesn't - i.e., if that huge chunk of change skimmed off the top of the system is counted as overhead, not profit - then Kadin2048's calculations are really, really misleading. I don't have time to check the math, so if that could be clarified, I'd appreciate it.
posted by mediareport at 3:11 PM on August 26, 2009


mediareport: You should really, really check the math. What percentage of health care costs go to CEO salaries?
posted by anotherpanacea at 3:18 PM on August 26, 2009


but frankly the private insurers run pretty lean operations on the administrative end

No, they really, really don't. Fortunately, we have a clear way to evaluate this - the medical loss ratio. The medical loss ratio is represents the amount of revenue that is spent on paying for health care for an insurer's members. This is a quick rundown of the medical loss ratios for several large insurers. These data are a few years old (I can't link to the original article in the AMA newspaper unless all us MeFites are AMA members) but this hasn't changed much. The other 16-24% of your premium is being spent on denying your claims, pressuring providers to take less payment, marketing, profit, etc. As mentioned in this link, these figures do not reflect the expense providers (docs, hospitals, etc.) incur in working with a dozen++ different sets of requirements for reimbursement.

This paper (pdf) from Berkeley does a nice job of debunking the perception that government is inherently inefficient. The data demonstrate that Medicare is more efficient than for-profit payers in terms of keeping costs down and in terms of spending collected dollars on actual medical care.

It seems that many people against a public plan option are running on the notion that private = efficient and government = inefficient. In the case of health care, that is not true.

Finally, the point isn't whether the profits being made by insurers are too big or just reasonable. Their interests run directly counter to the interests of their members. Ergo, they refuse to cover conditions and people. And it is their responsibility to do so. Their primary obligation is to their shareholders. Refusing to cover sick people increases shareholder returns. It screws over sick people, but the job of a for-profit company isn't to look out for sick people.

If we think it is important to make sure sick people can get the medical care they need, then we should give that job to the government or a regulated non-profit. We have to eliminate the fundamental conflict of interest.
posted by jeoc at 3:59 PM on August 26, 2009 [11 favorites]


plus, couldn't a public insurer serve to promote greater standardization and uniformity in billing and claims processing, which could help to reduce administrative costs?

I WISH.

We have standards. ANSI 4010, updated in 4050, now being deprecated in favor of ANSI 5010 (and, as a "bonus", we're moving to ICD 10.)

Everyone interprets the standards in various fascinating ways. And when a payer is pulling shit like putting strings in a numeric field, their answer is always the same. "Cope, and get paid in 72 hours, or don't, drop to paper*, get paid in six weeks. Your call."

I expect 5010 compliance to be as carefully adhered to. We're going back into the breach, though -- we're already doing the design work to move everything to 5010, one of the fun parts will be maintaining 4010/ICD9 while implementing 5010/ICD10.

This is my fucking thrilled face.

As to public insurers being better? Of the ten worst offenders, 7 are various state Medicares.

* In the south, they say "How Nice." In the insurance business, they say "Drop to paper." It means the same thing, really.
posted by eriko at 5:45 PM on August 26, 2009 [1 favorite]


jeoc: "
It seems that many people against a public plan option are running on the notion that private = efficient and government = inefficient. In the case of health care, that is not true.
"

In the case of many things it isn't true!

If you have multiple companies completing against each other to reduce prices, then each company has an incentive to reduce its costs as far as possible, so as to maximize their profits. But each company must duplicate the efforts of all the other companies that they're competing against. The more work one organization does, the greater the efficiencies produced.

Mind, if it was just one giant company running healthcare there would be like efficiencies, but in a market situation such a monolith would have far too much power, and could increase prices as they see fit. If such a situation is to occur, it's far better for the government to be running it.
posted by JHarris at 6:19 PM on August 26, 2009 [1 favorite]


What percentage of health care costs go to CEO salaries?

I dunno, you tell me. My point is that just zeroing in on "profit" without carefully looking at what counts as "overhead" in insurance company budgets is a misleading way to examine the issue of how much exactly private health insurance companies cost the system. If you have a point that counters that, please do share.
posted by mediareport at 6:44 PM on August 26, 2009


JHarris: The problem here is that neither the government nor the insurance companies produce health care. They only pay for it. Even in the ideal and not-being-considered-for-legislation model of a single-payer system, what you have is not a monopoly. It's a monopsony. There are at least two responses to monopsony: higher quantity or lower quality.

Ideally, a monopsonist will be able to use its bargaining position to bargain down the prices of the competing suppliers, who will respond by producing more health care for the same price as they had done less previously.

However, it's also possible that a monopsonist will bargain down prices and the suppliers will respond by supplying the same amount of health care at a lower quality.

So here's the question. With 47 million people uninsured, and already long wait times for primary care and in emergency rooms, where's additional supply of medical care going to come from? Where are we getting the extra doctors, nurses, and hospital beds to do this work? And how can we get all that without paying more for it, especially if we fire all the people (the insurers' administrative personnel) who currently negotiate the price of such goods?

And really, there's a third option: monopsonists may call into being a cartel of producers. Imagine what happens when doctors start collectively complaining that they would rather take it easy than work extra hours at the rates the monopsonist pays. That's exactly what happened for Medicare in 1992. You don't hear so much about doctors playing golf these days: that's because they're already getting squeezed by lower prices (bargained for by the HMOs) and more demand (as our population ages it needs more, and more expensive, health care.)
posted by anotherpanacea at 6:53 PM on August 26, 2009 [1 favorite]


Excellent post. I wish these guys did this for all complicated political issues.
posted by reenum at 7:11 PM on August 26, 2009


Imagine what happens when doctors start collectively complaining that they would rather take it easy than work extra hours at the rates the monopsonist pays. That's exactly what happened for Medicare in 1992. You don't hear so much about doctors playing golf these days: that's because they're already getting squeezed by lower prices (bargained for by the HMOs)

Wait--isn't there a pretty blatant logical contradiction hidden in the last part of your comment anotherpanacea?

The doctor's weren't willing to work at all for the low rates Medicare paid in 1992, but the low rates that private insurers pay now are forcing them to work more? I'm confused how these two ideas could coexist in a single, rationally coherent universe.

Could you explain please? I'm not just being snarky, I'm genuinely curious what you mean to suggest here.
posted by saulgoodman at 7:20 PM on August 26, 2009


And how can we get all that without paying more for it, especially if we fire all the people (the insurers' administrative personnel) who currently negotiate the price of such goods?

As the only game in town, a single-payer would have much more negotiating clout than the HMOs currently do. A health care provider would literally have no choice but to agree to the rates set by the single-payer. That's basically, as I understand it, how prescription drugs are "negotiated" in Canada now: The government crunches the numbers and issues a rate schedule, and that's the most the drugs can be sold for. Not a whole lot of inefficiency in that negotiation process.

As for all the private insurer administrative and other support personnel who'd lose their jobs, while the pragmatist in me sees the value in not forcing large numbers of people out of their jobs in the short term in order to benefit everyone in the long term, the idealist in me has to ask, if we choose our government policy not to save on health care costs over the long term, but only to protect the incomes of those in the health insurance industry, then isn't that effectively a government subsidy to the health insurance industry, a kind of backhanded welfare program that pays people to perform functions that could be performed more efficiently by other means just to keep them from losing their jobs?
posted by saulgoodman at 7:46 PM on August 26, 2009


wierdo: "You seem to forget that one of the primary goals of any profit-making entity is to make it look like they make far less money than they really do (legally!) so as to reduce tax liability."

Um, no. This is not true, at least non on a typical, everyday basis. If anything, big companies frequently inflate their profit figures up, not down. Think about their motivation: the only way the owners of the company—the shareholders—profit is through dividends. (They can also profit based on fluctations of the share price in the market, speculative value, but that speculative value is based on future predictions of dividends, so it's the same thing.) They have a huge incentive to get the profit as high as possible. This is why you get Enron-type situations, where the executives were sitting around playing all sorts of games to create phantom profit. They weren't making money, but they looked like they were on paper, and they were paying out dividends and driving the share price up, so the owners made out really well.

They have very little incentive in normal circumstances to deflate profitability. It makes them look like they're doing a crappy job running the company, and it pushes the share price down. And you better believe that the board of directors of a multi-billion dollar company is sensitive to the share price. The only exceptions to this that I've ever seen are out-and-out fraud, when profits were being hidden and taken out the back door somehow. But if you do that, there's a good chance you end up getting asked a lot of awkward questions by the FBI and IRS.

Sure, companies pay taxes on profit, but the taxes aren't that high when you get right down to it, and the alternative is not paying out dividends and distributing profits at all. It would make no sense for the shareholders to direct a company to hide profits in order to reduce its tax burden, unless they had some scheme to extract the money another way. But since most shareholders wouldn't get paid this way, you're essentially alleging a conspiracy of some shareholders against the others; I'm not saying that it doesn't happen, but it's a bit of a stretch to claim that it's de rigueur.

mediareport: "[D]oes the 2-3% profit include the $124.8 million the then-head of my insurance company, United Healthcare, made in 2005 alone? Because if it doesn't - i.e., if that huge chunk of change skimmed off the top of the system is counted as overhead, not profit - then Kadin2048's calculations are really, really misleading."

No, the actual salary expenses for all the people working for the insurance companies would be an expense, not profit. That goes for the CEO's actual salary and everyone else's. (Although many CEOs are also shareholders and make a lot of money off of dividends, and if that's counted as part of their compensation—it usually isn't, I don't think—then that would come from profit rather than expenses.)

That said, you're talking about drops in the bucket. $124 million may seem like a lot, but it's not that much in the scheme of things; each company isn't going to have more than a handful of people making the really big bucks, so across the industry you're probably only talking a few billion dollars that you could add to the 'profit' column. When you're talking about two trillion dollars (or two thousand billion, if we want to be consistent with our orders of magnitude) a year in healthcare expenses, that's not significant. Finding a way to cut their pay might be satisfying, but it's not going to save us from the red ink.

jeoc: "[W]e have a clear way to evaluate this - the medical loss ratio. The medical loss ratio is represents the amount of revenue that is spent on paying for health care for an insurer's members. This is a quick rundown of the medical loss ratios for several large insurers. These data are a few years old (I can't link to the original article in the AMA newspaper unless all us MeFites are AMA members) but this hasn't changed much."

Medical loss ratios are interesting, but you have to be careful when making comparisons with them. Medicare, compared with private insurance companies, processes a lot of large claims and has a significantly higher per-member annual payout than most private companies do. Since the overhead per claim is going to be about the same (it doesn't require a lot more effort to process a $25k claim for a hip replacement as it does for my $15 flu shot), and there are significant fixed costs, it makes sense that an organization whose members typically submit large claims is going to show a better ratio than one where many members only submit very small claims if they submit any at all.

This leads very quickly into an argument over whether loss ratios (whether the denominator is the total amount of claims in a given time period) is a better or worse metric than per-person losses (where the denominator is number of insured individuals). If you run it the latter way, generally the private companies do pretty well. (Which shouldn't come as a surprise; they have a lot of people who don't submit claims pumping up the denominator.)

Plus, you get a lot of values that claim to be Medicare's actual loss ratio when all expenses associated with it are included. I've seen it go from as low as 2% (which seems to be just looking at cash flow) to as high as 10% (by building in maintenance of the Federal debt proportionate to Medicare's share of the budget or something). Not surprisingly, you get the low numbers from groups in favor of a public option and high numbers from those against it.

But it's not really worth arguing about, because even if you take the really low Medicare expense ratios (or some other savings due to an economy of scale) on premise, the only way you can get them is by liquidating the existing insurance industry and firing all those redundant employees. It's a political non-starter; especially so in the current recession, but probably just as much at any other time. Thus "public option" is (or was) on the table, but "single payer" never has been in any serious way.

The most savings that we can realistically hope for via this route is bringing private insurers in line with the efficiency of Medicaid, keeping in mind that Medicaid's claims/insured ratio is higher and thus they push less paper per dollar than an insurance company dealing mostly with small claims. That wouldn't be trivial—it's certainly a lot more than we're ever going to get out of their profit margins—and might reasonably be assumed to get a savings of as much as 10% in expenses over time (that seems to be about the median delta that different reports find between Medicare and Medicare Advantage). That would be around $66B given total private-sector expenses of $660B, or 3.1%. A good start, but even combined with the ~2% you'd get by making them all into non-profits, it's still only around a 5% savings. Not going to be enough.

I'll close by pointing out a different number: 33%. That's how much lower average per-person healthcare costs are in Switzerland, which has a private healthcare system of a type that could be reasonably implemented in the US, than they are here. I don't know what the loss ratios are of their major insurers, but even if they're comparable to Medicare, it's clear that actual treatment costs must be lower, or else such a figure would be impossible. (I've been looking for an apples-to-apples comparison of treatment costs but haven't found one yet.)

The Swiss system would be implementable here, but only if we can get treatment costs down to a comparable level. If we don't do that at the same time—if we just broaden coverage and then hope, somehow, that costs will come down—the result is going to be a system that quickly becomes unbearably expensive and could either fail, or have serious negative economic consequences.
posted by Kadin2048 at 11:34 PM on August 26, 2009


The doctor's weren't willing to work at all for the low rates Medicare paid in 1992, but the low rates that private insurers pay now are forcing them to work more?

It's nor a contraction, because cartelization is only one of the possibilities. In the absence of monopsony, doctors have thus far been unwilling or unable to collude to raise prices. One of the reasons for this is that health insurance corporations hide their reimbursement schedules like they're nuclear launch codes.

That said, many doctors have responded to the crunch by shifting from primary care to specialized care, where prices are higher. That's a fairly organic shift, and I've watched several of my college friends who wanted to become GPs make the decision to go on for more specialized training after they did the financial calculations. They've gone on to supply higher quality care at much, much higher prices, while contributing to the relative scarcity of doctors by raising the barriers to entry (i.e. education and training times; tuition and lost income.)

Anyway, here's my point: if your goal is to lower prices, you can't just target insurance companies. Health care providers are going to have to be pinched, too.

The Swiss system would be implementable here, but only if we can get treatment costs down to a comparable level.

The Swiss benefit was the basis of the Wyden-Bennett bill, which these napkins would have you believe is an evil Republican plot to enrich the insurance companies. Hmmm.
posted by anotherpanacea at 4:36 AM on August 27, 2009 [1 favorite]


It's nor a contraction

Actually, "it's" is a contraction....

But it is not a contradiction!
posted by anotherpanacea at 4:37 AM on August 27, 2009


But it's not really worth arguing about, because even if you take the really low Medicare expense ratios (or some other savings due to an economy of scale) on premise, the only way you can get them is by liquidating the existing insurance industry and firing all those redundant employees.

So at the end of the day, even though we may agree that single-payer isn't politically practical now, the Health Insurance Industry is effectively a government subsidized industry, in the sense that our laws promote systematic inefficiency at a cost to the public so that health industry workers and executives can keep what should be redundant jobs.

I just want to emphasize that point: Any non-single-payer system is effectively a form of publicly subsidized welfare.

Anyway, here's my point: if your goal is to lower prices, you can't just target insurance companies. Health care providers are going to have to be pinched, too.

Yeah, and that's still much easier to do in a single-payer model. Unfortunately, as noted above, we've got to keep all those redundant health insurance industry workers and bosses on the public dole for the sake of political necessity.
posted by saulgoodman at 6:32 AM on August 27, 2009


Some good news for us who do support a public option: According to a new AARP poll, 79% of those polled support a federal health insurance plan. (I don't normally link to DailyKos, but the linked article includes links to the primary sources in this case.) A recent SurveyUSA poll, likewise, found support for the public option at 77%.

Interestingly, something like the swift boat effect seems to be at work here: When people are asked if they support the "public option" there's much less support for the idea than when they're asked if they support a "federal health insurance plan."
posted by saulgoodman at 6:47 AM on August 27, 2009


um, oops: "good news for we" or "good news for those of us"
posted by saulgoodman at 6:51 AM on August 27, 2009


Just to be clear, I'd be quite happy with a public option. But it's not the same thing as single payer, and I think it's important to support the right policies for the right reasons!
posted by anotherpanacea at 6:55 AM on August 27, 2009


That said, many doctors have responded to the crunch by shifting from primary care to specialized care, where prices are higher. That's a fairly organic shift, and I've watched several of my college friends who wanted to become GPs make the decision to go on for more specialized training after they did the financial calculations. They've gone on to supply higher quality care at much, much higher prices, while contributing to the relative scarcity of doctors by raising the barriers to entry (i.e. education and training times; tuition and lost income.)

Anyway, here's my point: if your goal is to lower prices, you can't just target insurance companies. Health care providers are going to have to be pinched, too.


While the trend you describe is undeniably true, the appropriate impact we need on the provider end isn't as simple as just putting the pinch on doctors. If anything, while procedural specialists continue to be over-reimbursed, the plummeting interest in primary care is't going to be fixed by reimbursing specialists less. That will simply drive more qualified, intelligent people away from medicine entirely. Primary care providers don't need pinching, they actually need better compensation.

Here's a tangible example of what one faces financially if you want to go into primary care (a real example, my significant other): after working incredibly hard through school and paying off her own undergraduate debt, she has had the pleasure of seeing many of her Ivy league colleagues go on to make ludicrous sums of money often straight out of college, with the opportunity to gain home equity, save and invest. Her path instead has involved continuing to work 80+ hours weekly, through her twenties, until she finally graduates from a residency. At that point she is 30 and has absolutely no equity/savings, and a fresh, $280,000 educational debt accruing interest. This debt might cost her half a million when all is said and done. She will now look forward to continuing to work 80+ or even more hours, in addition to handling an unending stream of phone calls and e-mails from patients which she will respond to with professional advice but not get reimbursed for in any way. She will scrape to make six figures. Oh yeah, working in child-bearing into this schedule has been left off the table.

She is intensely devoted to the notion of primary care for the underserved, but the reality is there aren't nearly enough qualified people in the country willing to make what is essentially a massive financial sacrifice to do what she wants to do. Paying specialists less isn't going to make those people all of a sudden more interested in primary care. They're just going to go get J.D.'s and M.B.A.'s instead.
posted by drpynchon at 8:18 AM on August 27, 2009


I don't know economics well enough to evaluate the outcomes of proposed scenarios realistically and I'm not in the business of providing health care or insurance. I'm just a consumer in this exchange, and as it happens I'm one who's lying on my sofa having heart palpitations, afraid to incur the costs of going to the doctor or the hospital practically in my backyard because my insurance no longer covers EKGs, Holter monitors, or any number of other diagnostic tests. I'm probably fine, but if I were in any other industrial nation, I'd have that confirmed by a medical professional.

In my unsophisticated view of the situation, I look at 9-figure C-level salaries and I see people and procedures. I realize when we're talking billions of dollars, 124 million is peanuts, but how many annual physicals would that equate to? How many vaccinations? How many transplants? How many emergency room visits? People are sick, dying, disabled, unemployed, bankrupt, homeless because of the obscene way health care and insurance are run in this country. To me, that is the bottom line.

It seems to me there are some very low cost changes that could be implemented quickly to improve access to health care. Start with IT compliance. Require insurance companies to fully comply with an ANSI standard 4010 or higher and unified billing codes and find a way to link it to their compensation so they're motivated. There's software out there that gracefully handles multiple standards (I know; I use one and love it for that). Implement competition and pools on a national scale, with standardized plans for all basic health care needs so that all a provider needs to do to confirm coverage for a given procedure is look at the plan code on the card and electronically confirm coverage is active for the named insured, except for procedures or services only covered by some supplemental plans, such as elective surgery or orthodontia. Prohibit recission except in cases of fraud that would stand up in court. Create a new category of prescription meds covering common, low risk meds like many antibiotics and topical ointments and such and authorize pharmacists to prescribe them at point of sale.

Those alone should decrease overhead significantly on both the provider side and the administrative portion of the insurer side as well as increasing pool size to mitigate risk, increasing competition, making the process more transparent and simpler for the consumer, and improving access to basic care while reducing the concerns about insufficient numbers of providers. Forgivable student loans for targeted health professionals and paraprofessionals would go a long way toward ensuring adequate supply of providers within 5 years, which would be a reasonable phase-in period for trying to insure another 50 million people. We're not going to solve this mess overnight, but frankly, I think the attitude that "It's only a few million dollars here and there and we're talking trillions!" is part of the reason we're in this mess now. A few million here and there and pretty soon we're talking real money. Or real lives.
posted by notashroom at 8:47 AM on August 27, 2009


As I said, I have several friends in the same boat. In this limited sense, we already face a monopoly on the supply of this specialized form of labor, with the monopolists being the trade schools, the AMA, and the State Bar Examiners. The professional classes (JDs, MBAs, and MDs) have all been in cohoots with the universities and professional licensing associations to preserve scarcity and thus drive salaries higher.

In order to increase the doctors available we need to reduce licensing requirements to where they stand in most of the rest of the world. In the US, we torture and en-debt our doctors-in-training pretty badly: we need to lower tuition (probably through subsidies but also by lowering education requirements) and lower our standards (there are plenty of mediocre would-be doctors out there who should have been admitted to medical schools or residencies but were shut out by a system designed to guarantee full employment for the toughest and brightest doctors.)

Since this is a solution that doesn't target the insurance companies, it's not likely to get much of a hearing. Everybody wants to target drug companies and insurance companies, but no one will take on doctors and nurses and physician's assistants and home care specialists and lab techs and pharmacists, because they're the smiling face of the medical establishment. But they're also the source of the real costs. An aging population gets sick more often than a young population, and keeping older people alive longer requires more, longer trips to the hospital, more medical interventions, more doctors visits, checkups, and lab work. More sick people need more hands-on care. Health care reform has to include some measures to lower the salaries of all the folks doing the work, because we're going to need more of it next year, and more still the year after that. Lower barriers to entry and more competition seem like the best strategy.

Would you agree, in general, that the best thing we can do for your partner is to reduce her student-loan debt and to increase the number of doctors available so that none has to work 80+ hours a week? If we succeed in bending the cost curve this way, your partner will have undergone arduous training only to find herself competing with folks who haven't. There will be a corresponding loss of income and she'll never catch up with her more selfish peers. I think that's unfortunate, but it's for the common good. Especially in a just society, there can be no guarantees that you'll be able to keep up with the Joneses.
posted by anotherpanacea at 9:07 AM on August 27, 2009 [2 favorites]


The above was addressed to drpynchon.
posted by anotherpanacea at 9:09 AM on August 27, 2009


Would you agree, in general, that the best thing we can do for your partner is to reduce her student-loan debt and to increase the number of doctors available so that none has to work 80+ hours a week? If we succeed in bending the cost curve this way, your partner will have undergone arduous training only to find herself competing with folks who haven't. There will be a corresponding loss of income and she'll never catch up with her more selfish peers. I think that's unfortunate, but it's for the common good. Especially in a just society, there can be no guarantees that you'll be able to keep up with the Joneses.

Absolutely. The costs of eduction and financial opportunity-costs incurred by not making any income during training in the US are one of THE major problems, as well as the factor completely ignored by those who'd like to compare US physicians' salaries to those in foreign countries.

As far as the 80+ hours of work though, most doctors don't decide to work those hours because there are too many patients to go around, and so having more doctors won't fix that problem. Early on in training, the work hours are miserable because training programs are forced to balance the risk of too many hand-offs between young physicians in training, with those of overworked physicians and risk of resulting medical errors. The sweet spot on trainee work hours is a constant source of debate. But once you're out of training, most physicians continue to work long hours because they are scraping to put together a practice, and reimbursements on a per patient basis (again we're talking non-proceduralists) are so low now that they cram in more encounters into their day than are reasonable and are forced to shorten their visit times and per patient interactions. This is of course, also bad for patient care. On top of that, the average primary doctor spends an additional 1-2 hours now daily working without reimbursement in correspondence with their patients, as well as fighting insurance companies. An e-mail might save a patient a time consuming visit to the clinic or stave off a costly hospitalization but not a penny is seen by the physician for it. Loosening the admittedly restrictive path to being a practicing physician might help deal with a relative shortage and poor distribution of primary doctors, but my personal opinion is that the quality of current medical school applicants is kind of crappy as it is. Lowering their expected reimbursement further and raising their supply places everyone at risk of getting even worse care. The problem with the process of weeding out prospective doctors is not that there are too many hurdles, but that the wrong hurdles are in place. As it is, a glance at nearly every AskMe health-related question will yield you disparaging remarks about current practicing GPs and constant recommendations to seek second and third opinions from subspecialists. Ultimately, from the personnel standpoint we are all going to get what we pay for, whether it's the government doing the paying or private insurers.

What exactly is a fair wage for someone who is required to have a minimum of 7-8 years of advanced training after college, goes into massive debt and lives on Ramen to do so, ends up with the responsibility for being the hub of a "healthcare home" for patients, and who risks their license and livelihood with every professional decision they make? I would posit that what most primary care physicians continue to make today is at least a reasonable amount, though to do so, they have already had to make patient care sacrifices as the system has evolved in the last 30 years. They are already being pinched, and have been ever since fee-for-service went out the window to be replaced by HMOs decades ago. People still envision every doctor in a Porsche on the way to the greens but that picture really is 20-30 years out of date. All the quick in-and-out clinic appointments of today are not how your doctor's visits should be. Just having more doctors around won't necessarily change that. With better reimbursement schedules for preventative care on a per patient basis, I suspect that most primary docs would end up maintaining the same salary, but would be willing and able to spend more time with their patients (which is what they wish they could do but are priced out of doing now). The job itself would become more attractive to potential doctors-to-be and if the compensation for proceduralists was reduced, we might see the shift away from specialty medicine to primary care that the healthcare system needs.
posted by drpynchon at 4:38 PM on August 27, 2009


drpynchon, prospective doctors aren't paid during their training? That's all sorts of fucked up. I mean, they essentially're just working during most of it...
posted by Dysk at 6:02 PM on August 27, 2009


Actually in honesty that's an overstatement. They aren't paid in the first 4 years of the medical schooling and typically incur debt amounting to $20,000-30,000 yearly for living expenses in addition to tuition/fee debt that can amount now to as much as $55,000 per year. After that, as residents they get paid about $45,000 per year, pre-tax, which for an 80+ hour work week amounts to not a whole lot (about $10/hr pre-tax), especially if they are incurring interest on their educational debt along the way. So basically through residency training, doctors make a reasonable living wage which allows for no saving what-so-ever, but the bulk of debt is accrued in the first four years while they are in "school." That debt (particularly beyond government Stafford loans) compounds interest during this period though actual payment can be deferred for many fortunately as otherwise monthly debt payments might account for more than 2/3rds of their take home resident salary.
posted by drpynchon at 6:25 PM on August 27, 2009


I'm imagining a combination of student-loan forgiveness programs (probably for opting into a new system of payments that is lower) and some kind of state intervention into medical schooling that lowers entry standards and reduces the amount of hours residents are allowed to work to around 55-65. Without debt or sleep deprivation, residency programs would look more like traditional entry level jobs in other professions, and less like an additional 3-4 years of torture. With lower fixed costs, doctors could afford to be merely upper-middle class rather than rich. As I understand it, this is the model in Europe and Japan, and accounts for much of the lower cost of care in all those countries that are doing more with less money.
posted by anotherpanacea at 3:52 AM on August 28, 2009


That is the model in some countries. One thing to note however is that as the pendulum has started to swing away from the nasty work hours in training, with limitation on work hours now placed by ACGME, some residencies are going to actually become longer. I do question the notion that physician reimbursement accounts for any sizable portion of the ludicrous cost of health care in the US. The fact that health care spending has gone from of 5.1% of GDP in 1960 to 13.4% in 1993, to 17.6% today can hardly be explained by what physicians take home. There are about 900,000 physicians practicing in the US today, making an average salary some estimate to be in the neighborhood of $180,000. If you were to cut income for physicians in half and assume that that would lead to no downstream ill effects at all, in the short term it would save us what? $90 billion dollars. That is still a drop in the bucket (back of the envelope about 3.5% of healthcare expenditures). Of course I'm biased in this, but in terms of cost containment this to me is basically trying to draw water out of a rock.

The success other countries have in terms of cost containment has less to do with doctors' incomes (I submit that income is probably comparable between the US and most 1st world countries when you account for the upfront fixed costs doctors have here) than with their societies' relative willingness to favor expenditures on cheaper preventative treatments over costly end-of-life care, caps on procedural specialties, government run health systems that actually operate with far less overhead than our system and have more bargaining power with pharma over prices, and universal coverage. Europeans succeed by accepting the fact that health care, like any other resource, NEEDS to be rationed, and they have succeeded where we have failed: instead of rationing implicitly by income, they ration based on the bang-for-the buck of a costly intervention. The fundamental problem is that this still terrifies voters in the US. The idea that maybe a drug that costs $20,000 and extends the life of a cancer patient 1 month ought not be covered by insurance, or that someone with a terminal condition and life expectancy of several months shouldn't be admitted to an ICU and put on a ventilator is anathema to USian. We'd rather keep these on the table and take our chances with bastard insurance companies. That is where our money is going right now. As a result we pay for any and every ridiculous intervention with doctors unable to set limits due to fear of litigation, costs continue to rise trickling down to rising insurance premiums, insurers lock out patients with chronic preexisting conditions from the system, and day by day the uninsured grow while people who suffer healthcare catastrophes have to file for bankruptcy.
posted by drpynchon at 7:55 AM on August 28, 2009


$90 billion dollars isn't exactly chump change. Compare it to United Health CEO's peasly $124 million for a moment: it's $90,000 million. Of course, it's utterly unfeasible, but this is the real key to differences in costs between the US and other first world nations. It's not the insurance companies or the Big Pharma, it's not the uninsured or the elderly, it's professional protectionism of medical workers, especially doctors. Ask yourself: why don't British and French doctors come here to make big money? They supply better care than we do, so they're obviously qualified, even though both countries do medical school right out of high school rather than after a Bachelor's degree. But the AMA won't let them compete, because they haven't done residency here. That's protectionism masquerading as 'standards.'

That said, I think you underestimate the cost savings to be gotten from reducing medical personnel costs. Care-taking is expensive. It's the biggest cost in healthcare. Together with hospital care, physician and clinical services account for 52% of healthcare expenditures in the US. Halving that would save a quarter of health care expenditures and 4% of GDP: about $550 billion a year. In order to do that, you've got to reduce physicians' salaries or the number of physicians or the number of specialists, and any way you slice that, it's going to hurt. What I'm proposing would also cut physician's costs, so reduced salaries would be less painful, perhaps even a good deal for new physicians, perforce at the expense of older ones though any change this grand will have to be phased in. Certainly European countries handle malpractice very differently than we do, and similar reforms would also help reduce costs and thus justify reduced salaries in the US.

But that won't be enough: we've also got to reduce the cost of nurses, lab techs, and other hospital staff. One way to do this is actually to increase the number of nurses and physicians assistants, and let them do more medicine. Having a doctor stop by to confirm every poison ivy diagnosis is expensive.

Going after for-profit and physician-owned hospitals would also help a bunch, plus there's a pretty disgusting set of data suggesting the conflicts of interest there are more than imaginary or symbolic. This is one reason why the NHS model of state-owned facilities is tempting.
posted by anotherpanacea at 8:49 AM on August 28, 2009 [1 favorite]


$90 billion dollars isn't exactly chump change. Compare it to United Health CEO's peasly $124 million for a moment: it's $90,000 million.

The fact that you're comparing the approximate total salaries of all practicing physicians in the US to that of a single Health Insurance CEO doesn't strike you as a little apples to oranges here?

And I don't care how it breaks out in percentage basis terms, $124 million in compensation for one individual in the health care industry who doesn't even provide the medical services himself, nor even personally administer the provision of those services still seems absurdly wasteful to me.

An interesting (if now a little dated) angle on the issue of Health Insurance CEO compensation here on WebMD, who notes of the $149 billion taken home in compensation over five years by just 23 health insurance CEOs in 2005:
...10% of 14.9 billion is 1.4 billion. If basic insurance costs $8,000/year for a family then taking 10% from just these CEO salaries would insure 35,000 Americans a year for five years. That is a lot of people that can be helped just by 23 men. Looking at the companies as a whole that profit from health care, we can probably pay for every uninsured person in this country for decades to come.
posted by saulgoodman at 11:04 AM on August 28, 2009


Sorry this:

"...who notes of the $149 billion"

Should be:

"who notes of the $14.9 billion"

I omitted the crucial decimal point there.

Looking at it another way, just 23 CEOs in 2005, took home roughly 17% as much as every practicing physician in the country cleared in the same time frame.
posted by saulgoodman at 11:08 AM on August 28, 2009


actually, my math is still really problematic. ignore that last percentage. i was jumbling up the numbers.
posted by saulgoodman at 11:11 AM on August 28, 2009


$90 billion dollars isn't exactly chump change. Compare it to United Health CEO's peasly $124 million

You're comparing the salary of every doctor in the country to 1 guy? You know there's a lot of folks pushing around papers at insurance companies from middle-management on up today that make pretty decent salaries. These are jobs that only need doing right now because of powerful political forces as was noted above.

But the AMA won't let them compete, because they haven't done residency here. That's protectionism masquerading as 'standards.'

Note that the same is true in the opposite direction. U.S. physicians wishing to practice in England or Australia (I use these as I know of specific examples who tried and eventually gave up) face major obstacles for licensure. I can't speak too knowledgably on this but that is at least the sense I've gotten.

Together with hospital care, physician and clinical services account for 52% of healthcare expenditures in the US.

This may be so, but again, I'm not sure lumping all of those together is entirely fair. My point is that ICU stays are exceedingly expensive and that expense is largely paid in the last few months of life. This is fundamentally not the case elsewhere for cultural reasons. At least my rough calculation is that of that 52%, about 5% of overall healthcare expenditures are physician income. That's 5 cents of every healthcare dollar going to the people that are actually making management decisions, saving lives, etc. Of note, after adjusting for inflation, physician income has already fallen dramatically over the last 20-30 years (between 1995 and 2003 alone, average income fell 7-8%). Moreover, its entirely unrealistic to think you can halve the income of needed human capital in this industry (nurses, especially) without potentially dangerous repercussions on quality of care. You invariable will get what you pay for, and to suggest that physicians' responsibilities warrant getting paid less than the average plumber (even if their education were to be entirely subsidized) is kind of ludicrous don't you think? It's crazy. You may think doctors these days are overqualified and overskilled but most people would disagree.

One way to do this is actually to increase the number of nurses and physicians assistants, and let them do more medicine. Having a doctor stop by to confirm every poison ivy diagnosis is expensive.

This is true. Basic preventative care and dealing with scratches and sore throats probably don't need going to medical school for, though others might disagree.

Going after for-profit and physician-owned hospitals would also help a bunch, plus there's a pretty disgusting set of data suggesting the conflicts of interest there are more than imaginary or symbolic.

This also, quite true.
posted by drpynchon at 12:32 PM on August 28, 2009


The way to think about insurance companies is like a private version of the Government Accountability Office. They try to make the system more efficient by finding cost cutting measures, then they pocket the difference and invest it elsewhere. When the GAO does it, the profits go back into the general budget, whereas when insurance companies do it the profits get re-invested in the economy. Ultimately, both are bureaucracies that are dependent for the sectors they work in for their maintenance. But neither is useless.

saulgoodman, the number you're looking for is 0.3%. Plus, much of this compensation comes in the form of stock options, so it's really coming out of profits. Why is it that so many opponents of exorbitant CEO salaries are innumerate? I also oppose this kind of extreme inequality, so I'm with you in spirit, but you're making us look bad. You want to tax the fuck out of them, that's fine with me. But when you've used the proceeds to pay for health insurance for thirty-five thousand people, there will still be 47,000,000 people looking for care.

You're comparing the salary of every doctor in the country to 1 guy?

Only because many people seem to believe that we can fix a national problem that currently tallies at $2.2 trillion annually by targeting one guy, or twenty-three guys for that matter.
posted by anotherpanacea at 1:07 PM on August 28, 2009 [1 favorite]


I promise I'm not innumerate, just sloppy and impulsive in this case. It seems I came down with an acute case of the Google-stupids and, with all my neurons hopelessly jumbled up from reading off of a computer screen instead of a printed page, I jumped the gun and completely misinterpreted a bunch of unrelated numbers in order to confirm my own biases. Then I couldn't find any better sources of data to make a more meaningful analysis and correct my error. If I didn't apologize enough in my last comment, I apologize again, and forever more. Please, just don't attribute my carelessness to the creeping menace of innumeracy.
posted by saulgoodman at 7:06 AM on August 31, 2009


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