Fundamental flaw in health care reform

Well, it appears that health care "reform" is taking a few last gasps, and what emerges from Congress will be a watered down bill that meets with Sen. Lieberman's requirements while achieving essentially nothing.

And I say... Good!!

What was being proposed, in all it's public-options and medicare-buy-in glory, was also meaningless.

Let me explain.

There are two underlying rationales for health care reform:

(a)    There are too many people who cannot afford health care.  There are too many uninsured moms who are scared of taking their kids to the park, for fear of the kid falling down a slide and getting hurt.  A progressive can debate whether the current number of 46M uninsured is more unacceptable than the proposed (under the reforms) number of 5M, or 10M, but most heart liberals would suggest that even 1 is unacceptable, and 46M uninsured is no more unacceptable that 1 uninsured.
(b)    But the stronger rationale for health care reform is basic survival (of the fittest economies).  This rationale has been forgotten in the debate.  Let is me illustrate with a few charts.

First, here is a chart that illustrates the % of GDP spent on health care for various OECD countries.

One can see several items right away:
(1)    All the OECD countries have been spending a greater share of their GDP on health care.  This is an expected trend, if you consider that the average life expectancy has been increasing, and that health care costs more for an older person than for a younger person.  For instance, old men tend to die prostrate cancer (which is expensive) while men die of heart attacks (which is cheap).
(2)    However, the percentage of GDP spent on health care in the US has been rising faster than in other OECD countries.  This discrepancy begs 2 (or 3) questions.

These questions are:  
(a)    What is the US getting, in return for this increased level of spending on health care.  Increased spending on health care should, in theory, result in increased health metrics (such as life expectancy at birth, and infant mortality).  If increased health care spending results in a longer life, and enables a highly productive 65 yr old, then it could be a net benefit to the economy; thereby justifying an increased spending on health care.  On the other hand, if increased health care spending does not result in a longer life, for instance, then that spending is wasteful.  Thus, the first question pertains to the relationship between increased health care spending and the health metrics (such as life expectancy).
(b)    The second question pertains to the relationship between the health metrics and the economy.  From a practical viewpoint, one cannot build an economy with increased levels of health spending, even if that health spending results in longer lives and fewer dead babies, if it does not ultimately result in increased economic output.  

So, let us examine these questions via some charts.

Here is a chart that shows the relationship between infant mortality and per capita health care spending ( Source: graphs.gapminder.org .

Note that there is, approximately, a "straight line" correlation (straight line only on the log-log scale) between increased health spending and decreased infant mortality (as expected); but there is also quite a bit of scatter around the straight line correlation.  Countries above the median line can be said to be using their health care dollars without getting much in terms of this particular health care metric ~ these include the US, Argentina (not marked), Qatar (not marked), Iran (not marked), South Africa, Botswana, Swaziland and Eq. Guinea.  Countries below the median line can be said to be using their health care dollars "wisely" (as defined above) ~ these include Singapore, Cuba, Thailand, Sri Lanka and Syria.

Another health care metric is life expectancy at birth.   Here is a log-linear plot of life expectancy at birth versus health care spending. Source: graphs.gapminder.org

As expected, there is a rough correlation between increased spending and increased life expectancy; and countries that fall below the average are not using their health care dollars "wisely" (i.e., in terms of this particular metric).  As before, the US is in the illustrious company of Swaziland, Botswana, Eq. Guinea, Rwanda (not shown) and other countries with near ideal societies.

Now, you might be wondering about the use of the log-linear (and the log-log) scale.  Real world economies are built on the linear scale, and so let us use that for a comparison between the US, the rest of the world and it's major competitors over the next 20-30 years (i.e., India and China).  Here is a chart that compares life expectancy at birth.

And a similar chart for infant mortality at birth

Now, we can ignore the bleeding heart aspect and discuss some cold hard realities.  The correlation between the health care metric and health care spending is steep for about the first $1000 in per capita spending.  Additional spending does not result in any additional benefits.  If you think of it, such a trend makes perfect sense ~ a mass polio vaccination campaign at $0.30/shot deliver a lot more than annual physical checkups at $100/person.  When viewed this way, one can see that China is almost ideally placed while India probably needs to increase it's health care spending by a little bit and that the US is at a significant disadvantage.

The cold reality is that compared to the average US worker, the average Chinese worker will require less health care spending (by about $6000/person-year), but will live just as long (and, in theory, be just as productive if other things are equal).  Thus, over a 40 year productive lifetime, the difference amounts to almost $0.25M/person.  This is a HUGE (note the capital letters) deal, and amounts to a tax on all items produced, or value enhanced by anyone in the US.  Thus, at this point, one does not even need to ponder the correlation between longer lives (and fewer dead babies) and the economy ~ we aren't even getting longer lives and fewer dead babies.

How much worse can it get ?

Here is a  forecast by the CBO

I find it impossible to believe that the US (or any country) can spend 38% of it's GDP on health care.  Thus, I find this chart impossible to digest ~ I believe that the system will correct itself either via a revolution or via managed changes, or due to increased economic pressures from India and China.

Of course, I cannot end without a word on how we got here.  As before, a picture can speaks a 1001 words straight out of the Arabian nights.  And so, here is a detailed chart of US health care spending over time.

Note that in 1960, the US was spending about what India currently spends on health care ~ and people were generally happy (I wasn't here then, but I am going by what Elvis and Bobby Brown said).  At the very least, people were not more unhappy than they are now.

Also note that Clinton, despite his well publicized failings on the health care front, appears to be the only President to have delivered on this count ~ the spending on health care was flat under him.  Quite a spectacular achievement, if you look at the chart, and you consider that President Obama's fondest wishes were to "bend the curve" in total health expenditures at some future date (beyond 2020), and all the reform proposals only sought to "bend the curve" in annual growth in health spending.  Here is one of the proposals:

I cannot believe that so much debate has gone into proposing a complicated measure that could, perhaps, bend the curve in annual growth in health spending at some future date.

It is time to start over, but with a relentless focus on two metrics:

(a) the number of uninsured.
(b) per capita health care spending.

The 2nd metric was forgotten in the current debate !!

Tags: Economy, GDP, Health Reform (all tags)

Comments

48 Comments

Re: Fundamental flaw in health care reform

A federal socialized medical system ala countries in the EU that would achieve these goals will never get through Congress. I believe that Sanders had the right idea when he proposed or at least voiced the idea that any federal legislation allow the states to develop their own medical care systems with federal support. That would allow them to cover everyone and include a public option.

I am convinced that there is so much corruption at the federal level that a national government run single payer system will never get through Congress, not even the partial system that just failed.

by MainStreet 2009-12-15 12:59PM | 0 recs
Re: Fundamental flaw in health care reform

Health spending in India is nearly all (80%) private.  China's health spending at 58% private is nearly identical to the US, where it is 54% private.

I agree with you that a socialized system would be better ~ that is only because ANY system would be better; we have worked really hard to develop the absolute worst!!

by Ravi Verma 2009-12-15 02:42PM | 0 recs
Re: Fundamental flaw in health care reform

70% of Indians however cannot afford health care. I imagine the number for China is not terribly different.

by vecky 2009-12-15 05:01PM | 0 recs
Re: Fundamental flaw in health care reform

do you have a link for these numbers ?

by Ravi Verma 2009-12-15 05:09PM | 0 recs
Re: Fundamental flaw in health care reform

No, but I've been there. 26% of the population lives below the poverty line. Health care is expensive relative to wages.

by vecky 2009-12-15 08:56PM | 0 recs
Ah!!

by Ravi Verma 2009-12-15 08:58PM | 0 recs
Re: Fundamental flaw in health care reform

Well if I am not mistaken, health care in Japan is all private. However, the government controls profit levels and prices in degree that it is less expensive, almost on a par with countries who have a nearly full government run single payer medical care. In fact, the government yearly publishes rates for every medical procedure in a manual to be used by practitioners.

So the notion of private versus public is not as critical as the degree of government control of the medical care system.

by MainStreet 2009-12-16 04:16AM | 0 recs
Re: Fundamental flaw in health care reform

Good post. However it's important to note that during the Clinton years HC spending increased, but because of increase in wages and the large expansion of GDP it essentially flatlined as a % of GDP.

And of course Clinton did not have some of the problems Obama now faces - massive systemic budge deficits and an aging population. During Clinton's time the Boomers retirement were still 15-20 years away. Well now those years are gone, they are upon us. The time for reform was 15 years ago. We know how that turned out.

by vecky 2009-12-15 01:35PM | 0 recs
Re: Fundamental flaw in health care reform

The increase in wages that you refer to, has been fairly constant under ALL presidents (give or take a few decimal points corresponding to noise).  I can show you separate charts for that.

And of course, when Clinton assumed office, he inherited massive structural deficits ~ deficits were an important element of the 1992 campaign.

by Ravi Verma 2009-12-15 01:48PM | 0 recs
Re: oh god

Where did I blame the Clintons? They tried to get health-care passed, but failed because Dems in congress stonewalled aided by the GOP. I still give them credit for trying though.

by vecky 2009-12-15 09:02PM | 0 recs
Re: Fundamental flaw in health care reform

 But but but will a family of 4 with an income of $54,000 have to spend a dime on health care? IMMORAL!

by QTG 2009-12-15 01:40PM | 0 recs
Re: Fundamental flaw in health care reform

I was not making a comment on the morality of the proposals...

by Ravi Verma 2009-12-15 01:48PM | 0 recs
Re: Fundamental flaw in health care reform

 But Obama promised!

by QTG 2009-12-15 02:02PM | 0 recs
Re: Fundamental flaw in health care reform

I was not making a comment on President Obama's promises either...

by Ravi Verma 2009-12-15 02:03PM | 0 recs
Re: Fundamental flaw in health care reform

 The Democrats are dead to me.

by QTG 2009-12-15 02:06PM | 0 recs
Wow!!

Quite a reaction, based solely on one reverse ?

Hopefully you have deeper reasons that just this!!

by Ravi Verma 2009-12-15 02:14PM | 0 recs
He is being sarcastic...

by louisprandtl 2009-12-15 04:50PM | 0 recs
I was as well....

by Ravi Verma 2009-12-15 04:54PM | 0 recs
Ok..it's getting late and I'm getting slow...

by louisprandtl 2009-12-15 05:00PM | 0 recs
Re: Ok..it's getting late and I'm getting slow...

I am not totally ignorant of the ongoing feud between QTG and tarheeel74...seems like they were carrying on an old conversation through a 3rd party over here...

by Ravi Verma 2009-12-15 05:15PM | 0 recs
Re: Ok..it's getting late and I'm getting slow...

I haven't replied to either of the tarheels in months. I certainly am not going to be goaded into a downrate war with the likes of a tarheel##. I did no intend to distract people from your interesting diary, and I apologize if that was the effect, Ravi.

by QTG 2009-12-15 05:34PM | 0 recs
WTF does Pelos have to do with this?

She passed a bill with a public option.

by ND22 2009-12-15 05:12PM | 0 recs
Re: WTF does Pelos have to do with this?

Well, there was the Stupak coat-hanger thingy.

by vecky 2009-12-15 09:04PM | 0 recs
Re: i say lets get a new speaker

I am getting really tired of unhiding your crap...

by Ravi Verma 2009-12-15 08:56PM | 0 recs
Re: Fundamental flaw in health care reform

Are you coming around to the Republican position on this issue?  Americans have too much insurance coverage, which leads to too much health care spending?

by Steve M 2009-12-15 02:50PM | 0 recs
Re: Fundamental flaw in health care reform

Well, I do happen to resonate with some republican positions; but not that particular one ~ at least not in the way you described.

I do believe that we tend to *overuse health care because it appears to be free (insurance pays, so why dont I just get this procedure).  But I am not a health policy expert to know how much of a diff that makes.  

I also believe that Doctors tend to overprescribe certain tests.  This is partly to avoid lawsuits (at least that is what all my MD friends say) and partly to make a profit (that is what some of my MD friends say).  Again, I do not know how much difference this makes; but I do know that democracts tend to deny such factors.

My understanding of the democract position (if I could use such a term) is that if we could only insure everyone, the total health care spending would decrease ~ because insured people would get preventive care.  All the CBO scorings of all the various proposals should have taught us that this is not going to happen.

Thus, I do believe that there may be some merit in the republican position (again, if I could use such a term) that we should limit lawsuits etc.  We should take a fresh look at the problem.

by Ravi Verma 2009-12-15 03:17PM | 0 recs
And please dont hate (troll rate) me

for advocating republican positions on a progressive blog.  I do not blog anywhere else, even under any assumed name, and I am not a troll !!

by Ravi Verma 2009-12-15 03:19PM | 0 recs
Re: Fundamental flaw in health care reform

Mu understating on the preventative care issue is that it actually costs more money. First off, preventative care is regular - so it's a fixed expense that continues for the entire life of the patient, even if they are healthy. Secondly, it's more expensive to treat someone with early states of cancer and keep them alive and someone who discovers rather late they have 3rd stage cancer and dies within 6 months.

The trade off is that a healthier population is a wealthier population (health = wealth), so by spending more money on keeping people healthy, everyone is better off because those folk are also making more money.

Then of course there is the whole moral/ethical issue...

by vecky 2009-12-15 09:09PM | 0 recs
I agree with you

Per capita health spending has to be contained. Unfortunately the bill in its current form does not even come close to addressing that. The subsidy as written now is shoveling tax payer dollar to private companies. If anyone, including the president, claims that this bill is addressing per capita spending then he or she is lying, they are selling snake oil. You can cover every single person without spending a dime of tax payer money, but decreasing per capita spending is trickier but this bill does nothing to address that.

by tarheel74 2009-12-15 03:12PM | 0 recs
Unfortunately,

I dont think the President has even claimed to be attempting any cost savings.  His mantra was to "bend the curve" at some point into the future ~ which is when I stopped paying attention.

by Ravi Verma 2009-12-15 03:21PM | 0 recs
Re: Unfortunately,

No he claims that he is attempting cost savings with this shit sandwich, he just did it today and that's what really irks me, because it's just not true.

by tarheel74 2009-12-15 03:29PM | 0 recs
Re: Unfortunately,

I don't pay much attention to the news, unfortunately.  So you may be right.

by Ravi Verma 2009-12-15 03:34PM | 0 recs
Re: Unfortunately,

President Obama:

"You talk to every health care economist out there, they will tell you that what ever ideas exist in terms of bending the cost curve and starting to reduce cost for families, businesses, and government, those elements are in this bill."

http://www.youtube.com/watch?v=XIKZWZz8u ps&feature=player_embedded

by bruh3 2009-12-15 05:50PM | 0 recs
Thanks...

"bending the curve" does not interest me much.

If every idea was truly in there, and the cost curve were to rise regardless (yeah, with a hoped for bending at some future point), then it can only mean that there is something fundamental driving the cost curve up.

In any case, there are quite a few elements that are missing ~ malpractice reform comes to mind.

by Ravi Verma 2009-12-15 08:00PM | 0 recs
Re: Thanks...

"Malpractice reform hasn't bent the cost curve in Texas healthcare, but it's still paying off"

http://www.allbusiness.com/legal/torts-p rofessional-negligence-medical-malpracti ce/12938067-1.html

"It's not surprising that malpractice reform has failed to move the needle on healthcare costs. Caps are in place in 31 states, including Texas, and many academic studies have found that they have limited impact on health economics.

"Medical malpractice is not a major driver of spending trends," concludes a report by the Robert Wood Johnson Foundation."

I am not into talking points. Empiricism, however, I am into.

The  major cost drivers in the U.S. are a) an aging population (present in EU so you can also see increases there, but not at the rate in it occurring in the U.S.) b) wasted allocation of resources both due to fraud (apparently that one is true) AND government waste like higher cost of drugs due to conservatives/"liberals" protecting drug companies c) etc.

I am not even going into the cost analysis of the public sector (which is cheaper) versus the predominant place waste takes  place (the private sector). When one looks at the public expenditure on healthcare it is in accord with other countries.

In practical terms, one has to think about why it is the case that Medicare/Medicaid/public sector health care is cheaper when adjusted for population differences. Ie, medicare, for example, is primarily old people- thus one would should expect the numbers to be worse, not better or even comparative to the private sector which tends to have healthier and younger patients. Yet, the greatest percentage of health care cost comes from the private health insurance markets. Why?

by bruh3 2009-12-15 08:37PM | 0 recs
Re: Thanks...

Well, I look at the Texas data (which I was not aware of, btw, so thanks for the link) and come to the same conclusion as I do wrt universal coverage.

One has to try out malpractice reform, and universal coverage, before one can accept that neither will reduce costs by any substantial amount, as proposed by the proponents of the two changes.

Texas put limits, they saw a lot of positive changes (such as more Doctors etc.), but overall costs did not go down.  Likewise, the CBO scoring suggests that icnreased coverage will not result in reduced health care spending...

There is something more fundamental going on!!

by Ravi Verma 2009-12-16 06:58AM | 0 recs
Re: Thanks...

I fail to see where Universal Coverage has been said to reduce costs. IMO it merely redistributes costs more efficiently.

On malpractice reform - malpractice insurance is just a big a scam and health insurance. Even if payouts go down there is no reason for insurance companies to pass those savings on as they are virtual monopolies anyway.

Or you can look to the Canadian system where the government in effect buys the malpractice insurance for all doctors (co-pay of 20% or something). So every time you sue you are effectively going up against the government and that usually doesn't work out very well.

by vecky 2009-12-16 08:09AM | 0 recs
Re: Thanks...

Increase coverage will no tmatter alone due to concentration of markets- the oligopoly issue.

by bruh3 2009-12-16 08:34AM | 0 recs
Re: Thanks...

More complicated discussion of health care cost issues here than I am able to do:

"If we calculate from the estimates in the census data, the numbers yield a private insurance rate of 77.3% for ages 18-64 in 1987 and 70.7% in 2004. I do not recommend such raw calculations from tables; and the ages aren't exactly the same; but it seems likely that the proportion of the population ages 19-64 with private insurance fell by about six percentage points between 1987 and 2004. If we adjusted the denominators for PHI costs in 1987 and 2004 for the portion of the 19-64 group that actually had private insurance, the cost increase for PHI would be about 270%."

http://healthaffairs.org/blog/2009/06/05 dangerous-confusion-on-medicare-cost-co ntrol

PHI=Private Health Insurance

by bruh3 2009-12-15 08:50PM | 0 recs
Re: Thanks...

Ooops, I am not good at comments.  See the comment I inserted below.

by Ravi Verma 2009-12-15 08:55PM | 0 recs
I dont know why...

what are your thoughts ?

My guesses would be MLRs (medical loss ratios), but that only accounts for 20% (MLR is at around 70% for private sector) or so.  

by Ravi Verma 2009-12-15 08:54PM | 0 recs
Re: I dont know why...

Providers. Doctors make a lot more in America than in any other country in the world (which is why so many doctors want to come to the US).

I've always thought Americans pay a lot for their health care but maybe they like spending a lot. And of course a lot of spending leads to general inflation = when you have a sector in which "cost is no option", prices are going to keep going up.

by vecky 2009-12-15 09:16PM | 0 recs
Re: I dont know why...

I maybe off in that they make "much more". The numbers are rather similar to Canadian doctors, which is understandable because otherwise Canada would suffer from doc flight. Ofcourse living expenses in the US are cheaper as are taxes.

But the general point of inflation in the health care sector still stands.

by vecky 2009-12-15 09:20PM | 0 recs
Re: I dont know why...

Nobody will dispute that Doctors make more here.  But then, a cabdriver also makes more here ~ that is not a bad thing by itself.

by Ravi Verma 2009-12-16 07:01AM | 0 recs
Re: I dont know why...

I don't know if Cab drivers make more in the US... in Germany they all drive around in BMWs and Mercedes.

by vecky 2009-12-16 08:04AM | 0 recs
Re: I dont know why...

I think that MLR is one factor along with aging population, cost of drugs, fraud, pricing of procedure rather than outcome pricing, etc. There are also other factors like technology. It is not simple. What is not helping is the profit motive distorts efforts to address the problem. Other countries may be facing inflation, but the part that makes us less competitive is that we are increasing at a faster rate than they are. I did a quick back of the napkin review of the entirety of the EU one time-- I believe 499 mil people or so (with al the various models that the EU member states have), and the cost per person was still lower than in the U.S. by 8 points or more.  That's how fucked up our system is.

by bruh3 2009-12-15 09:21PM | 0 recs
Re: Fundamental flaw in health care reform

recommended!

KILL BILL

by Trey Rentz 2009-12-16 04:31AM | 0 recs
Quentin Tarantino would like that. He made three

parts..

by louisprandtl 2009-12-16 05:19AM | 0 recs

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