Why American Health Care Is So Expensive

Slate.com reports that it isn't the fault of the insurance companies or health care providersd; rather, it's our fault:

The debate about health care tends to be informed by three notions about health insurance:

The profits of private insurers are so big that cutting them out would meaningfully lower costs.
Private insurance clearly costs more than a government-run system such as Medicare.
Mergers that have created a small number of huge and powerful insurers increase health care costs.
None of these is true.

Myth No. 1: Insurers' profits are responsible for our health care costs.

This is the most pervasive and most crowd-pleasing of the health care myths. The profits of the big health insurance companies are central to the rhetoric of the health care debate, figuring heavily in the Democratic primary campaign. Barack Obama's platform includes a promise to force insurers to spend enough on care "instead of keeping exorbitant amounts for profits and administration." Michael Moore, the director of Sicko, has hammered the point repeatedly, thundering about how insurers maximize profits by "providing as little care as possible."

The problem here is that between them the five biggest health insurers—UnitedHealthCare, Wellpoint, Aetna, Humana, and Cigna—which cover 105 million members, last year had profits between them of $11.8 billion. This is not a small number; these are very profitable companies. But total U.S. health care costs last year were in the area of $2.3 trillion.

So, with a membership that included a little more than half of the Americans covered by private insurance, these five insurers' profits came to 0.5 percent of total health care costs. (One interesting point of comparison: In 2006, the income earned by the 50 biggest nonprofit hospitals alone came out at $4 billion.)

Critics also argue that insurance companies pass along excessive administrative costs to their customers. Wellpoint, for instance, spends 18 percent of the premiums it takes in on sales and administrative costs. That represents a real concern but merely raises the next question: Can a government-run program that cuts out insurers do it for less?

...

Diagnosis

Patient, heal thyself. It's not insurers that push expensive drugs, long-shot end-of-life treatments, and redundant procedures. It's customers who ask for them. And mainly doctors and hospitals who profit. How to deal with those issues is a question that will affect the health care bottom line more than whether it's the government or private companies that provide insurance. Too bad it's one we have hardly even started to answer.

I wonder if Michael Moore is ready to lose his (free) lunch?

A Data Point Ignored in SiCKO

Andrew Sullivan's got the goods, quoting the Telegraph:

Tony Blair poured millions into Britain's socialized healthcare system, pumping unprecedented resources into a healthcare system that Michael Moore admires and the American left loves. This is the result:

More than 70,000 Britons will have treatment abroad this year – a figure that is forecast to rise to almost 200,000 by the end of the decade. Patients needing major heart surgery, hip operations and cataracts are using the internet to book operations to be carried out thousands of miles away.

India is the most popular destination for surgery, followed by Hungary, Turkey, Germany, Malaysia, Poland and Spain. But dozens more countries are attracting custom. Research by the Treatment Abroad website shows that Britons have travelled to 112 foreign hospitals, based in 48 countries, to find safe, affordable treatment.

Wait just a second, says Ezra Klein:

Indeed, there are more Americans -- 100,000 -- traveling abroad for cosmetic surgery alone than there are Britons seeking any type of services in foreign lands. America is actually driving the medical tourism industry that some Britons are taking advantage of. The growth of foreign treatment centers aren't a result of the failings of the British health care system (of which there are many). They're a result of the cost of American health care, and the huge numbers of sick individuals we price out.

Well, first things first. There are five times as many Americans as Britons, so comparing raw numbers isn't appropriate. Also, Americans are going for plastic surgery while Britons are seeking treatment abroad in order to stay alive. Obviously they aren't the same. In addition, the American model is a free trade model, so "medical tourism" isn't exactly a critique of the system; it's part of the system. Seeking out lower prices for procedures is what you're supposed to do. In Britain, however, everything is intended to be provided by the government (and at much lower cost, as Klein goes on to remind us). But the fact is that the service is so unsatisfactory that people are choosing to opt out of Britain's system in favor of the free trade model. The fact that citizens living in countries which provide UHC are choosing to forego the free coverage (for which they've already paid, through taxes) in favor of a free exchange is not supportive of arguments in favor of UHC.

So, tell me: how is this supposed to support Klein's position that we should move to a European-style UHC system post-haste?

WHO Health Care Measures Are Wrong

Eat your heart out, Michael Moore:

So what's wrong with the WHO and Commonwealth Fund studies? Let me count the ways.

The WHO judged a country's quality of health on life expectancy. But that's a lousy measure of a health-care system. Many things that cause premature death have nothing do with medical care. We have far more fatal transportation accidents than other countries. That's not a health-care problem.

Similarly, our homicide rate is 10 times higher than in the U.K., eight times higher than in France, and five times greater than in Canada.

When you adjust for these "fatal injury" rates, U.S. life expectancy is actually higher than in nearly every other industrialized nation.

Diet and lack of exercise also bring down average life expectancy.

Another reason the U.S. didn't score high in the WHO rankings is that we are less socialistic than other nations. What has that got to do with the quality of health care? For the authors of the study, it's crucial. The WHO judged countries not on the absolute quality of health care, but on how "fairly" health care of any quality is "distributed." The problem here is obvious. By that criterion, a country with high-quality care overall but "unequal distribution" would rank below a country with lower quality care but equal distribution.

It's when this so-called "fairness," a highly subjective standard, is factored in that the U.S. scores go south.

The U.S. ranking is influenced heavily by the number of people -- 45 million -- without medical insurance. As I reported in previous columns, our government aggravates that problem by making insurance artificially expensive with, for example, mandates for coverage that many people would not choose and forbidding us to buy policies from companies in another state.

Even with these interventions, the 45 million figure is misleading. Thirty-seven percent of that group live in households making more than $50,000 a year, says the U.S. Census Bureau. Nineteen percent are in households making more than $75,000 a year; 20 percent are not citizens, and 33 percent are eligible for existing government programs but are not enrolled.

For all its problems, the U.S. ranks at the top for quality of care and innovation, including development of life-saving drugs. It "falters" only when the criterion is proximity to socialized medicine.

Medicine Blogging

Of course, a lot of attention is being paid Michael Moore's new take on the health care industry; this is to be expected. A lot of bloggers have responded to the film, and to each other. This is also to be expected. Here's some of the best stuff:

Austin Goolsbee, Barack Obama's economic advisor, on the (un)feasibility of Sicko's policy prescriptions:

So, to do as Moore wants in the United States, you would need to do more than just overcome the insurance industry. You would need to cut the salaries of doctors, reform the legal system, enrage our allies by causing their prescription drug costs to escalate, and accustom patients to a central decision-maker authorized to determine what procedures they are and are not allowed to get. Unless every one of these changes comes together, Moore's new system would end up costing an enormous amount of money.

But Arnold Kling isn't buying what Goolsbee is selling.

Plus:

Jane Galt (er, Megan McArdle) on Matthew Yglesias on CNN:

Aside from that, however, most of my ideas are simple, elegant, and doomed to die an agonising death in committee--like bringing back open wards, slashing the salaries of doctors and nurses, or denying expensive treatments to the elderly, disabled, and other severely ill people. If Matt has better ones for trimming down that 7.7% to a level where we might feasibly cover 200 million other people with what remains from France's spending, I am very interested to hear it.

Jane Galt (er, Megan McArdle) on adverse selection and moral hazard:

For those who are not familiar with the concept, adverse selection is what happens in markets like those for insurance, when one side has much more information than the other. In the case of health insurance, it means that only those who think they are likely to be sick will buy insurance; which means that the average cost of covering health care for those people will go up; which means that the health insurance company will raise the premiums; which means that those who aren't that sickly will stop buying it; which means that the average cost of covering health care for those people will go up . . . . and presto, suddenly there's no market.

And the Boston Globe on "medical self-defense"

I tend to be on Ms. Galt's (er, Ms. McArdle's) side of this particular debate. If we really decide that we want to spend a whole shit-ton more money on health care, and if we are willing to accept the tradeoffs that go with it, then let's do it. But let's not pretend that there is a magic bullet that can everyone free health at no societal cost. Using unrealistic hypotheticals (i.e. lies) to sell a policy that is based on normative priors and not positive analysis is not only bad politics; it's unethical.

Cuban Health Care

Michael Moore's latest travesty of truth -- Sicko -- premiered at Cannes and will receive a full release soon. After watching it, many people will be convinced that the Cuban health care system is better than America's. The NY Times says that it ain't so, especially if you are a commoner:

“Actually there are three systems,” Dr. Cordova said, because Cuba has two: one is for party officials and foreigners like those Mr. Moore brought to Havana. “It is as good as this one here, with all the resources, the best doctors, the best medicines, and nobody pays a cent,” he said.

But for the 11 million ordinary Cubans, hospitals are often ill equipped and patients “have to bring their own food, soap, sheets — they have to bring everything.” And up to 20,000 Cuban doctors may be working in Venezuela, creating a shortage in Cuba.

Elsewhere, British magazine The Prospect has an eyewitness account:

Healthcare and education are supposed to be the redeeming graces of the regime, but this is questionable. There are a large number of doctors, but, according to most Cubans I know, many have left the country and the health system is in a ragged state—apart from those hospitals reserved for foreigners—and people often have to pay a bribe to get treated. Michael Moore, the American film director, who has recently been praising the system should take note of the real life stories beneath the statistics. I went into a couple of hospitals for locals on my latest visit. In the first, my friend told me not to say a word in case my accent was noticed, as foreigners are not allowed in these places. I was appalled by the hygiene and amazed at the antiquity of the building and some of the equipment. I was told that the vast majority of Cuban hospitals, apart from two in Havana, were built before the revolution. Which revolution, I wondered; this one seemed to date from the 1900s.

And Jane Galt disputes the notion that Cuban infant mortality rates are lower than those in the U.S. as well, and reminds us that there are three kinds of lies: lies, damn lies, and statistics.

Very interesting article on Cuban v. American infant mortality shows one of the trickiest aspects of using statistics: making sure you're not comparing apples to oranges.

The reason this is so difficult is that often statistics which sound like they're the same thing actually aren't. For example, comparing rape statistics. Most of us think of rape as being forcible intercourse with an unwilling victim. However, there are studies that have included such things as statutory rape (which may be appalling, but isn't what we're trying to get at, which is the rate at which people are sexually assaulted), "rapes" in which the victim never struggled or said no, but merely reported later that she was uncomfortable, or other definitional expansions that make it hard to establish valid comparisons with other studies that focused on forcible intercourse.

In this case, the article points out that while Cuba seems to have a lower infant mortality rate than America, this appears to be because extremely low-weight births for which American doctors perform heroic intervention (and thus get recorded as a live birth in America, followed by a death a few hours later), get reported as stillbirths in Cuba. So it's very important, when you see a statistic, to ask yourself if the two numbers are really comparing the same thing.