Getting what we pay for

December 3, 2010 2:57 PM

Per capita US spending on health care in 2008 exceeded $7500-- more than any other OECD nation, half again the spending of the runner-up [PDF], and double its spending in 1990. Why? Aaron Carroll of the Incidental Economist explains in 12 parts.

Shorter version by Jensen and Mendonca.

It's not because we're obese. It's not because we're older or sicker or drink too much or smoke too much.

Tort reform would have minimal effects on health spending. The majority of costs associated with medical malpractice are due to defensive medicine, and doctors in states with tort reform do not alter their practices.

It's not because we have the best health care in the world.

Access is terrible, and improvements to access will only see costs increase.

We actually use fewer drugs than people in other developed nations, but we use more expensive drugs, and we pay much more for those drugs. The extra we pay is twice the total cost of pharmaceutical research and development. The extra we pay is more than combined research and marketing costs of the entire pharmaceutical industry.

Despite the extent of our spending, we still underspend on long-term care. It's not because we send our elders to nursing homes rather than caring for them at home.

Administrative costs may be underestimated in the McKinsey paper, which forms the basis of Carroll's analysis. Curious about insurance companies' finances?

Our hospital stays are short but expensive. We use more MRIs, and each MRI costs us more than in other nations.

posted by nathan v (41 comments total)

Americans will never accept an argument where one of the suppositions is that they're not the best at something, so good luck getting anyone to care about this.
posted by GuyZero at 3:05 PM on December 3, 2010 [18 favorites]

Here's an analysis for you: the average sincere and accurate analysis of health care problems in the U.S. is about 15,000 syllables too long to have an effect on health care discourse in the U.S.
posted by Riki tiki at 3:12 PM on December 3, 2010 [8 favorites]

the conclusion (after 12 parts):

Our system costs more because just about every part of it just costs more.


but that's because health care isn't a problem with policy, every other OECD country has a system in line with GDP; we know, roughly, what to do. it's a problem with politics. you can't possibly regulate an important industry, a utility really, when one side of the debate is yelling "TREASON," which is what "socialism" amounts to in U.S. politics. So, the way you fix health care, like many other things which are broken in the U.S.: transportation, education, energy.... is by changing the politics of 'socialism.'
posted by ennui.bz at 3:12 PM on December 3, 2010 [13 favorites]

Americans will never accept an argument that ends with "explains in 12 parts."

(Says this American...it's too close to Christmas)
posted by circular at 3:16 PM on December 3, 2010

Unless those twelve parts are all pie.
posted by Eideteker at 3:19 PM on December 3, 2010 [7 favorites]

Americans look upon this chart and weep.


Swiss, look upon this chart and make another watch or eat some chocolate or something
posted by smoke at 3:20 PM on December 3, 2010 [7 favorites]

Get this ivory-tower academic socialist propaganda out of my face. Every red-white-and-blue blooded American knows this is all Obamacare's fault and people are sick because of wikileaks!
posted by fuq at 3:39 PM on December 3, 2010 [2 favorites]

Wow. At least I didn't go to law school!
posted by Comrade_robot at 3:41 PM on December 3, 2010 [1 favorite]

So, you know, like I do, I posted some of these links to the ol' FB. Because even FB isn't safe from trolling (oh, friends and family, how consistently you make me sad), I decided to insert a caveat this time:

"For the love of god and all that is holy, if you wish to rebut this article, please have numbers to back up your claims. Every time I read a sentence about poor people choosing to buy LCD TVs instead of going to the doctor, an angel loses its wings."

The reason that caveat is there is because most people don't RTFA, and instead prefer to tell me about how they have health insurance because they're good people who work hard. Hey friends and family! Guess what? I don't have health insurance! That's obviously because I'm a worse person and don't work as hard as you! L'Oreal health insurance, because you're worth it!
posted by palindromic at 3:43 PM on December 3, 2010 [7 favorites]

Oh right, my point. Anyway, my hope is that framing this in terms of "Kia-level performance from a Lamborghini-priced system" will win over the so-called fiscal conservatives.
posted by palindromic at 3:44 PM on December 3, 2010 [2 favorites]

It's because of gouging. I don't understand why no one stands up and goes, "It's gouging. You fuckers. Are charging. Too much."

At some California hospitals, a tablet of Tylenol, or its generic version, acetaminophen, is billed at $5 or $5.50. Others charge $7, or even $9, for a single pill.

Oh, but wait ... what about the overhead, you say? Isn't the cost of the Tylenol factoring in the overhead? Yeah, they'll tell you that (same link):

Mr. McGowan says there's a good reason his hospital charges much more for the tablets than a consumer would pay at a drugstore. "I suggest that you call the drugstore," he says, "and ask them to bring you one Tylenol delivered to your bedside by a registered nurse after you have a prescription from a doctor, along with a glass of water, and see what they charge."

Hey, jackass. This here bill says you're already itemizing all of those things separately. I paid for the room. I paid for the bed. I paid the doctor's prescription. I paid for the water. And now I'm paying for the Tylenol. At $9 a pill.

So, I'm going to enjoy this Tylenol. After all, I paid for it. MULTIPLE TIMES.
posted by Cool Papa Bell at 3:48 PM on December 3, 2010 [24 favorites]

So I took a big hit income wise in the past few years and one of the things my family no longer has is health insurance. Still reasonably young healthy. ....

Two weeks ago I tore tendons in my left wrist. I tell the orthopedist I have no insurance. Well he says "normally X-rays are 150.00 but I won't charge you."

"Cortisone shots are 125.00 and that wrist brace is 50.00 but don't worry about it"

WTF?
posted by pianomover at 3:49 PM on December 3, 2010 [6 favorites]

That's oddly appropriate when you consider that KIA stands for Killed In Action.
posted by ifandonlyif at 3:49 PM on December 3, 2010 [1 favorite]

administrative costs are systenically underreported because they dont take provider admin costs into the figure. socialized medicine eliminates entire job categories for providers of all sizes. and could open up multiple floors of large hospitals to actual patient care.
posted by yesster at 3:53 PM on December 3, 2010 [1 favorite]

"Cortisone shots are 125.00 and that wrist brace is 50.00 but don't worry about it"

WTF?

So the medical industry has perfected the system of pricing to each individual's price sensitivity. They do this by initially charging you the crazy outside maximum cost and then discounting anytime you ask.

Except when they fuck up and decide not to.

It's like Vegas where the table stakes are your health.
posted by GuyZero at 4:19 PM on December 3, 2010 [7 favorites]

When a tiny practice with two doctors needs to employ between 9 and 12 people, at least 5 of them solely to deal with insurance maze, that tells you something right there. Then there's profit-taking by the insurers -- i.e. the percentage of your health care dollar that doesn't provide healthcare to _anyone_. What's that percentage again? 35% or so? I haven't looked it up recently.
posted by George_Spiggott at 4:20 PM on December 3, 2010 [4 favorites]

"Cortisone shots are 125.00 and that wrist brace is 50.00 but don't worry about it"

WTF?

They'll probably do something like charge the next 5 people with insurance an extra $35 so the hospital will be even. I skimmed the "12 parts" but I didn't see anything about hospitals treating the uninsured driving up costs.

It sort of amuses me seeing the different rationals used by politicians, like Obama would use a compassionate argument for universal health care in that the uninsured risked bankruptcy if they faced a medical emergency, and the mandate was an unfortunate necessity to get the bill through congress, while Mitt Romney when defending his similar health care plan called the uninsured a bunch of freeloaders who run up huge medical bills and pass the costs onto the insured and an individual mandate was required to prevent this. I find this amusing because it's completely different arguments (compassion vs. responsibility) reaching the same conclusion.
posted by bobo123 at 4:30 PM on December 3, 2010 [2 favorites]

I skimmed the "12 parts" but I didn't see anything about hospitals treating the uninsured driving up costs.

It's true that uninsured may make bad uses of medical resources (ER visits are nuts expensive, failing to take preventative care), but aside from those that shouldn't impact the aggregate cost. These estimates aren't using "insured people" as the denominator.
posted by a robot made out of meat at 4:47 PM on December 3, 2010

palindromic: I decided to insert a caveat this time:

[...] Every time I read a sentence about poor people choosing to buy LCD TVs instead of going to the doctor, an angel loses its wings."

You could also post this video by Elizabeth Warren on the coming collapse of the middle class, where she categorically refutes the notion that the middle class is shrinking because they're spending their money stupidly.

People today, compared to the early 1970s, are spending less of their income on most discretionary expenses, and a lot more on necessities. Health care and college education are two of the biggies.

Or this discussion by Paul Krugman on The Future of the Middle Class. Or if they have short attention spans, try this excerpt (it's only seven minutes long).
posted by Davenhill at 5:06 PM on December 3, 2010 [5 favorites]

We have two Kias. Kia-level performance from a Kia-priced system would be pretty good.

Don't have much use for Lamborghinis. Don't handle for shit in the snow.
posted by lodurr at 5:07 PM on December 3, 2010 [1 favorite]

When a tiny practice with two doctors needs to employ between 9 and 12 people, at least 5 of them solely to deal with insurance maze, that tells you something right there.

Where are these practices? Because I go to a practice that has at least 6 exam rooms, one doctor, a couple of affiliated professionals (chiro & PT sharing staff), an RN (who does most of the interviews), two NPs (who do most of the diagnosis), one FT receptionist and one person doing bookkeeping and insurance.
posted by lodurr at 5:11 PM on December 3, 2010

I don't understand why no one stands up and goes, "It's gouging. You fuckers. Are charging. Too much."

lol are you serious

americans literally show up to rallies with AR-15's to defend insurance executive profits
posted by hamida2242 at 6:00 PM on December 3, 2010 [6 favorites]

Kia prices with Kia performance? Go to your vet. That's what you get.

I'd be happy to have that. Human health care in the US is Cadillac only. We don't get the Kia option.
posted by yesster at 6:00 PM on December 3, 2010

If vets were allowed to treat humans I might well go to one.
posted by lodurr at 6:02 PM on December 3, 2010 [2 favorites]

I'm sure if you subtracted out the cut that insurance companies take off of our healthcare spending, we would fit in much more nicely with the rest of the developed world's costs.

Head slapper: my company is self-insured. We pay BCBS to administer and anonymize everything, which is good in one respect, because I don't really want Suzie in HR seeing the bill for my [embarrassing ailment]. But you know what else we pay them for? The discount. It's practically a protection racket. You give us money, we will strongarm people for you. And don't mistake it: they are the ones behind all the anti-Obamacare stuff.

Also, one of the problems with the "best system in the world" metric is the variety of it. It is possible, maybe even probable, that with unlimited money and a little luck, you will get the best possible care in the US. So, by that metric, the care is the best in the world. Not very telling, however. But easy to make into a soundbyte. Where it falls apart is when you look at the average care, or quality control, or access, or price. By any of those metrics, not the best.
posted by gjc at 6:39 PM on December 3, 2010 [2 favorites]

I'm sure if you subtracted out the cut that insurance companies take off of our healthcare spending, we would fit in much more nicely with the rest of the developed world's costs.

The percentage of revenue gained from premiums that is spent on medical claims is known as the medical loss ratio (which sounds bad, so sometimes they call it the health benefit ratio). From the Curious about link, Wellpoint's 2008 MLR was 84%.

Combined, medicare and medicaid made up 35% of total health expenditures in 2008, leaving 65% for individuals and private insurers.

Different measures of Medicare administrative expenditures exist. Let's call it 3%.

If the cost of administering and profiting off of private insurance dropped to the cost of administering medicare, we'd cut about 10% off the price of health care. We would still be way out of whack compared to other countries.

A great deal of insurance administration deals with denying claims. That's part of the equation of how they make more money. It's reasonable to assume that were we to adopt medicare for everybody that the number of denied claims would shrink. That would take a bite out of that 10% we'd save.

It's tempting to think that nationalization of health insurance would solve our problem with health care spending. I don't believe the numbers bear that out though.
posted by nathan v at 7:21 PM on December 3, 2010 [1 favorite]

From the outside it's virtually impossible to figure out what the hell is going on with healthcare in the US.

In New Zealand it's unimaginable that any political party would remove our socialised healthcare system.

Hearing from people who stay in jobs they hate, or let their employer fuck them over, because they are afraid to lose their health insurance is insane.

And then constantly reading that the US, despite this insanity, spends MUCH more than any other country on healthcare - it's just impossible to really understand how it is allowed to remain that way, let alone how people protest to keep it that way.
posted by sycophant at 7:23 PM on December 3, 2010 [11 favorites]

I think the really shocking fact is this (from the first link):

However, the level of health spending in the United States is so high that public (i.e. government) spending on health per capita is greater than in all other OECD countries, excepting only Norway and Luxembourg. For this amount of public expenditure in the United States, government provides insurance coverage only for the elderly and disabled people (through Medicare) and some of the poor (through Medicaid and the State Children’s Health Insurance Program, SCHIP), whereas in most other OECD countries this is enough for government to provide universal primary health insurance.

Essentially, the US is very OMG SOCIALIST! w/r/t/ health care, they just aren't very good at actual socialism.
posted by ssg at 7:37 PM on December 3, 2010 [5 favorites]

Neither Norway nor Luxembourg are good examples to use for outsiders. Norway has about $1M in reserve per taxpayer and a steady stream of oil royalties and (now) investment returns on those savings. The US Fed would need about $300T in savings to be in a comparable position, essentially having about 100 years of income tax per taxpayer in savings. Ain't going to happen anytime soon.

Luxembourg, of course, has the Rhinegeld and is run by evil dwarfs, so perhaps it's a more workable arrangement for the US than Norway's example.
posted by bonehead at 9:02 PM on December 3, 2010 [3 favorites]

Interestingly a major reason why we stopped our family at one child is because of the shitty medical care prospects. We were lucky to have a kid who hasn't seen the inside of a hospital at 7 years -- however once you start adding more kids in a family the odds will catch up with you. Just for having our son (unexpected c-section but no other problems) we came out of the hospital with a $21,000 medical bill. That gave us our first taste of how the US medical system is inherently designed to fuck over anyone who uses it, insured or not, sooner or later, and in even the smallest capacity of usage (e.g. pre-existing conditions). I'm self employed and of course that means my family gets the Ron Jeremy gang-bang shaft of fleeting, expensive, non-group coverage. I hope the fucking health care system in the US implodes and all the teabaggers and "got mine" assholes on cushy corporate group plans are found 20 years from now sucking on hickory bark to relieve the pain from that odd tumor or odd blood ailment. And you know they're STILL going to be laying there, blood dripping out their mouths, saying that goddamn, at least they didn't have to wait 7 hours in the ER in Toronto.
posted by crapmatic at 9:10 PM on December 3, 2010 [10 favorites]

Neither Norway nor Luxembourg are good examples to use for outsiders.

They aren't examples in this case, they are simply data points. It so happens that they alone have higher public spending than the US.

Maybe read first, comment later?
posted by ssg at 9:14 PM on December 3, 2010

What's going to be the effect of Obamacare on all this when it finally starts kicking in around 2014? I was under the impression that the bill that ended up being passed was more about access to health insurance, and less about actually controlling costs.

Did that provision that allowed the states to do single payer actually make it through? I thought I was following it, but I guess I lost track towards the end...
posted by heathkit at 10:58 PM on December 3, 2010

In New Zealand it's unimaginable that any political party would remove our socialised healthcare system.

The current government wants to privatise ACC, in much the same way many of the same ministers started to in the 90s. It's not at all unimaginable.
posted by rodgerd at 1:14 AM on December 4, 2010

Just for having our son (unexpected c-section but no other problems) we came out of the hospital with a $21,000 medical bill.

We have two kids, with a third about 7-8 months away. For the first two my wife suffered from Hyperemesis Gravidarum - for the first of those she was actually hospitalised, on and off, for about half the pregnancy. When at home she was on perscribed meal replacement drinks and a range of anti-emetic meds. The second pregnancy was better managed (different medication) but still required frequent check-ups with our midwife as well as obstetric specialist, and extra ultrasounds. Direct costs to us for all of that - $0.

Having learned more about HG since the birth of our first son we've also read many stories of Americans who been bankrupted by this illness, and others who've spent many many thousands on treatment, even with insurance. The cost of the condition in the US has been calculated at $88,000 per pregnancy.

Various other child-related medical stuff, including minor surgery, a 4-day hospital stay for baby, allergy tests and treatments - $0.

And so on...

The current government wants to privatise ACC, in much the same way many of the same ministers started to in the 90s. It's not at all unimaginable.

They may like to return to a privatised provision of coverage, but fundamentally the universal nature of that coverage remains.
posted by sycophant at 1:46 AM on December 4, 2010

In September I cut off a slice of my finger and because it was rush hour and I was bleeding A LOT I went to the local non-charity hospital rather than the charity hospital an hour away.

I got a my finger dunked in lidocaine, no stitches, and a bill for $1734. A couple months later, after chewing my knuckles about this prospective debt, I got word that my debt was forgiven. Not only THAT, but I could go to this celebrated hospital's emergency room for free until May 2011! This is great. I have no health insurance, so this is great!

But I can't see any of the doctors affiliated with the hospital. I can go to the ER, see, but not to the doctors. Somewhere, this all makes sense, - I think it must make sense, to someone.
posted by goofyfoot at 4:57 AM on December 4, 2010 [1 favorite]

UPDATE: Some people won’t stop.

Poor guy
posted by r_nebblesworthII at 9:05 AM on December 4, 2010

Re costs of insurance paperwork: I work in a hospital. I am an admin to four surgeons. The majority of their patients have cancer. Before they have surgery, we get a predetermination of benefits - basically the insurance company says whether or not they are going to pay for the surgery. Somebody else does this paperwork so I don't know much about it. Then if the patient has a cancer policy, we fill out paperwork for that (why providing a positive pathology report is not sufficient is beyond me). If the patient misses work, or the family member caring for them post-operatively misses work, we fill out FMLA paperwork (and sometimes of course both the patient and their caregiver need FMLA). If they are out of work for awhile, they frequently need short-term disability paperwork filled out. If they are disabled by their cancer, they need long-term disability paperwork filled out. The insurance providers will require new paperwork every month, or every three months, or every six months - depending on the insurer - even if their condition will never change (every six months doesn't seem particularly unreasonable to me, but every month is ridiculous). If the insurance company denies any part of their treatment we have to fill out paperwork to appeal that.

For one patient, we sometimes need to fill out seven or eight separate types of insurance forms, because we do a pre-d, and FMLA for them and for a family member, and ST disability, and they get denied for something we have to appeal, plus they sometimes have multiple insurers so all the paperwork is doubled.

Everybody's forms are different. Did you know that even though FMLA is a federal program, you don't have to use the standard form provided by the US Dept of Labor? Which is fairly straight-forward and takes about a half hour to fill out, including the time to read through the patient's chart - departing from those forms usually means they take longer to fill out (some employers simplify the forms, which is nice, but mostly they just want more info). Sometimes the short-term disability paperwork will require us to provide billing information, even though our billing department is also providing them with an itemized bill.

One thing that would cut some costs is to standardize the forms. It wouldn't solve all the cost issues by any means, but speaking just about FMLA and disability paperwork and my own experience, it would cut down on about a quarter of the time spent filling out those forms - multiply that by every provider in the country and that's a significant cost saving.
posted by joannemerriam at 1:07 PM on December 4, 2010 [6 favorites]

One thing that would cut some costs is to standardize the forms.

There is an app for that.
posted by metaldark at 2:34 PM on December 4, 2010

I think our costs are high because doctors are shitty business people and finance guys are shitty doctors. Also patients are terrible customers.
posted by humanfont at 2:49 PM on December 4, 2010 [2 favorites]

The percentage of revenue gained from premiums that is spent on medical claims is known as the medical loss ratio (which sounds bad, so sometimes they call it the health benefit ratio). From the Curious about link, Wellpoint's 2008 MLR was 84%.

But wasn't there just a thing in the news where large employers were looking for exemptions from the Obamacare rule where the loss ratio is required to be above 80%? That seems like it is evidence that not all insurers are as efficient as Wellpoint's 84%.

Don't forget to add in the cost savings of providers not having to pay so much overhead in insurance compliance.
posted by gjc at 3:52 PM on December 4, 2010

Plans for individuals tend to run with a lower loss ratio. Plans for large groups run with a higher loss ratio. (Because of bargaining power.) Wellpoint has many different plans, provided to many different groups, and the individual loss ratio of each is higher or lower than 84%, but they average out to 84% in aggregate.

Insurers estimate their average MLR at 87%; Senate analysis suggests less, in the range of 80-84%.

As for saving administrative money for providers-- that's tricky, probably impossible to quantify. Not all administrative costs are in dealing with insurance. I think most providers will tell you that it's a nightmare to deal with medicare, that getting any money out of them is like pulling teeth, so all those billing departments still have to exist. (Part of why a lot of providers are averse to serious reform is because they're scared to death of seeing medicare reimbursement from more of their patients.) It's true that, were everyone to have a single insurance provider, some administrative hassles would be streamlined.

You could start with a limit, though. The Woolhandler/Campbell/Himmelstein paper (administrative costs may be... link) suggests total of 31% administrative costs in the US. My understanding is that estimate is on the high end of the range. 31% includes all of administrative costs and profits of insurance companies. So the most we could save here would be a third of how much we spend.

Of course, that's with zero administrative costs. Canada spends approximately 17% of its health care expenditures on administration. There's more than one way to translate that to US terms. Let's say cost per capita, absolute cost rather than cost relative to GDP, which may not be the best way to measure it, but it will be the way that shows Canada in the best light and us in the worst. So it spends $700 yearly per capita, and we spend $2300 yearly per capita. So going with this way of estimating things, we're looking at a savings of 22% of our health care expenditure.

No, there's just no way. Even if we eliminate the entire administrative budget, we are still spending way more than other nations are.
posted by nathan v at 8:26 PM on December 4, 2010