Saturday, January 30, 2010
Friday, January 22, 2010
$3.5 trillion over the next decade
For a fuller discussion of the problem of high health care costs, read my analysis on Scribed (link below):
With the election of Republican Senator Scott Brown in Massachusetts and the continuous public focus on the economy, the present health care reform effort in Congress appears stalled. Whatever happens to it, it is worth considering how much it would have cost to provide coverage under the current cost structure to the 15% of the US population, which is currently uninsured.
Much of the media latched onto the talking points of “budget neutral” and “deficit reducing over 10 years.” But these are nebulous concepts, at best. Whether something is budget neutral simply depends on how much redistribution happens through the government. The better question is how much will it cost. So here are a few simple, back-of-the-napkins calculations based on data provided by the Kaiser Family Foundation, The Congressional Budget Office, and The Congressional Research Service. Most of the data is from 2007 since the period of 2006-2008 is the time frame for which there is the most complete research and information. Ten or twenty percent adjustments of these figures don’t substantially alter the final result.
So covering the uninsured under the present cost structure would look something like this:
Private insurance covered a total of 172 million non-elderly Americans for approximately $900 billion. If we assume the 45 million currently uninsured are added to the rosters of private insurers, that’s an increase of 26% in customers for the insurance companies. (It doesn’t matter whether people are forced to pay directly the cost of health premiums, or do so through taxes, or subsidies.) Assuming costs are proportionate, annual health care spending will increase by 26% of $900 billion or by $234 billion.
The Congressional Budget Office forecasts that by 2019, health care costs would double. Proportionately, this means that the $234 billion per year will grow to $468 billion per year over the next decade. Assuming a linear increase, the average annual cost over the next decade would be $351 billion per year. Thus it will cost $3.5 trillion over the next 10 years to cover the people who are presently uninsured.
This calculation is clearly an oversimplification, but the assumptions made or ignored affect the cost estimates both positively and negatively. For example, some of the money that is currently spent by the uninsured out of pocket will no longer be spent out of pocket but through the insurance program. So the net increase in costs may be less than the $234 billion estimate. On the other hand, as people gain health insurance coverage, they tend to consume more health services, which will result in an overall increase in the consumption of health services, thus growing the dollar amount beyond the $234 estimate. Furthermore, the simplified estimate above ignores any adverse selection effects – the notion that the people who currently don’t have health coverage, on balance, require more health services than the ones who are covered.
Even if my simple estimate overstates the costs by a factor of two, and it doesn’t cost $3.5 trillion over the next decade but only half as much, the implication is clear – without dealing with the high and rising costs of health services, it will be very difficult to have broader coverage and to avoid the economic disaster caused by unsustainable health care expense levels.
With the election of Republican Senator Scott Brown in Massachusetts and the continuous public focus on the economy, the present health care reform effort in Congress appears stalled. Whatever happens to it, it is worth considering how much it would have cost to provide coverage under the current cost structure to the 15% of the US population, which is currently uninsured.
Much of the media latched onto the talking points of “budget neutral” and “deficit reducing over 10 years.” But these are nebulous concepts, at best. Whether something is budget neutral simply depends on how much redistribution happens through the government. The better question is how much will it cost. So here are a few simple, back-of-the-napkins calculations based on data provided by the Kaiser Family Foundation, The Congressional Budget Office, and The Congressional Research Service. Most of the data is from 2007 since the period of 2006-2008 is the time frame for which there is the most complete research and information. Ten or twenty percent adjustments of these figures don’t substantially alter the final result.
So covering the uninsured under the present cost structure would look something like this:
Private insurance covered a total of 172 million non-elderly Americans for approximately $900 billion. If we assume the 45 million currently uninsured are added to the rosters of private insurers, that’s an increase of 26% in customers for the insurance companies. (It doesn’t matter whether people are forced to pay directly the cost of health premiums, or do so through taxes, or subsidies.) Assuming costs are proportionate, annual health care spending will increase by 26% of $900 billion or by $234 billion.
The Congressional Budget Office forecasts that by 2019, health care costs would double. Proportionately, this means that the $234 billion per year will grow to $468 billion per year over the next decade. Assuming a linear increase, the average annual cost over the next decade would be $351 billion per year. Thus it will cost $3.5 trillion over the next 10 years to cover the people who are presently uninsured.
This calculation is clearly an oversimplification, but the assumptions made or ignored affect the cost estimates both positively and negatively. For example, some of the money that is currently spent by the uninsured out of pocket will no longer be spent out of pocket but through the insurance program. So the net increase in costs may be less than the $234 billion estimate. On the other hand, as people gain health insurance coverage, they tend to consume more health services, which will result in an overall increase in the consumption of health services, thus growing the dollar amount beyond the $234 estimate. Furthermore, the simplified estimate above ignores any adverse selection effects – the notion that the people who currently don’t have health coverage, on balance, require more health services than the ones who are covered.
Even if my simple estimate overstates the costs by a factor of two, and it doesn’t cost $3.5 trillion over the next decade but only half as much, the implication is clear – without dealing with the high and rising costs of health services, it will be very difficult to have broader coverage and to avoid the economic disaster caused by unsustainable health care expense levels.
Tuesday, January 12, 2010
Health care costs in the US - why so high?
If the US health care industry were its own economy, it would be large enough to have a seat at the G8 table. It provides the most expensive health care in the world, though not necessarily the best, and it’s not accessible to millions. It is becoming a large and unsustainable burden on Americans and on the US economy. Both conservatives and liberals have enough reasons to demand a significant reform in the way the system operates but current reform efforts are largely misdirected.
The real cause of high and rising health care costs is either misidentified or ignored by lawmakers. Artificial villains are designated (malpractice lawyers, health insurers), which further detracts the public discourse, policy analysis, and political decisions from focusing on and removing the true drivers of costs. I recently researched and wrote an analysis of US health care costs, which concludes that the key underlying problem in our health care system is the inefficiency of doctors and hospitals.
Click on the "View my documents on Scribd" link below to read or download my analysis. The link takes you to Scribd, which hosts the paper.
The real cause of high and rising health care costs is either misidentified or ignored by lawmakers. Artificial villains are designated (malpractice lawyers, health insurers), which further detracts the public discourse, policy analysis, and political decisions from focusing on and removing the true drivers of costs. I recently researched and wrote an analysis of US health care costs, which concludes that the key underlying problem in our health care system is the inefficiency of doctors and hospitals.
Click on the "View my documents on Scribd" link below to read or download my analysis. The link takes you to Scribd, which hosts the paper.
Friday, December 11, 2009
Government logic
The US House of Representatives has passed two bills that affect auto dealers, reports Automotive News today.
The Dealer Arbitration Bill is described as giving the 2,150 auto dealers whose franchises were canceled by GM and Chrysler more favorable terms in the arbitration of their disputes with the automakers. So the government decides to interfere in this business dispute not by establishing a mechanism for impartial resolution, not in support of its own to companies involved in it (GM and Chrysler), but by tilting the field against them and in favor of the dealers.
The second bill is the 1,279-page financial regulation legislation, which would create the Consumer Financial Protection Agency. Its intent is to protect consumers from making bad financial decision by regulating the sources of financing, such as mortgages, credit cards, etc. Given that the second largest financial transaction for most Americans is the purchase of an automobile, and that dealers are the biggest targets of consumer complaints about financing, one could expect the new law to regulate dealer financing as well. Not so--the bill excludes dealers-assisted financing from this regulation.
If your politics lean to the left, you're likely to accept the first bill but be appalled at the omission in the second. If your politics lean right, you would likely disprove of both. If you're an auto dealer...
Also today Automotive News reports that all of Toyota's North American factories are running over time to keep up with demand. Hm... if you're an auto dealer you might just want to get a Toyota franchise.
The Dealer Arbitration Bill is described as giving the 2,150 auto dealers whose franchises were canceled by GM and Chrysler more favorable terms in the arbitration of their disputes with the automakers. So the government decides to interfere in this business dispute not by establishing a mechanism for impartial resolution, not in support of its own to companies involved in it (GM and Chrysler), but by tilting the field against them and in favor of the dealers.
The second bill is the 1,279-page financial regulation legislation, which would create the Consumer Financial Protection Agency. Its intent is to protect consumers from making bad financial decision by regulating the sources of financing, such as mortgages, credit cards, etc. Given that the second largest financial transaction for most Americans is the purchase of an automobile, and that dealers are the biggest targets of consumer complaints about financing, one could expect the new law to regulate dealer financing as well. Not so--the bill excludes dealers-assisted financing from this regulation.
If your politics lean to the left, you're likely to accept the first bill but be appalled at the omission in the second. If your politics lean right, you would likely disprove of both. If you're an auto dealer...
Also today Automotive News reports that all of Toyota's North American factories are running over time to keep up with demand. Hm... if you're an auto dealer you might just want to get a Toyota franchise.
Sunday, November 22, 2009
Spending: World defense vs US health care
Click on the image below to view it in detail.
Sources:
The Center For Arms Control And Non-Proliferation (http://www.armscontrolcenter.org/)
The Henry J. Kaiser Family Foundation (http://www.kff.org/)
The Center For Arms Control And Non-Proliferation (http://www.armscontrolcenter.org/)
The Henry J. Kaiser Family Foundation (http://www.kff.org/)
Thursday, November 19, 2009
The breast exam scandal
On Monday of this week a federal task force reversed a recommendation that women between the ages of 40 and 50 get annual mammograms. This caused a furor in the media. The Diane Rehm Show on NPR had a discussion on the topic this Wednesday. Based on what I hear and read in the media, women are appalled for two reasons:
1. The new guidelines may make some women in their 40s feel that they are no longer at risk, and that these women, failing to subject themselves to annual exams and mammograms, would suffer or die from breast cancer that could have been caught in time.
2. Private health insurance companies may use these new guidelines as a pretext to drop coverage of annual mammograms for women in their 40s. The consequence, of course, is that a substantial group of women will no longer have health insurance coverage for mammograms.
The second issues seems to cause the biggest outrage, and merits asking 'why' at least once.
In the media discussions, the cost of a mammogram was mentioned as being approximately $100. If a health insurance company drops coverage for this procedure, the women, who would previously have the test paid by their insurance company, would now have to spend $100 a year for the test.
Would this additional expenditure be financially ruinous to these women? Considering that people who are covered by private health insurance tend to be in the middle and upper class, it is hard to fathom that spending the equivalent of one month's cell phone or cable bill in order to protect their lives would have any impact on their finances or would make them very upset.
But what would happen to women of any age, who are not covered by health insurance? These tend to be the working poor - not poor enough to qualify for government help, yet not earning high enough income to afford health coverage. If mammograms are no longer covered by health insurance, they are likely to go the way of breast implants - paid out of pocket. As I wrote in a previous post, the prices of medical procedures that were paid out of pocket tended to decrease over time because they were subjected to the same forces of competition that make computers ever better and ever cheaper.
The net result is that as prices of mammograms drop, they will become more affordable and more accessible to the working poor who don't have health coverage. An for those relatively wealthier women with health insurance (who still have to pay out of pocket for their exams) the price will also be somewhat less than the current $100, perhaps dropping to something closer to a pedicure...
1. The new guidelines may make some women in their 40s feel that they are no longer at risk, and that these women, failing to subject themselves to annual exams and mammograms, would suffer or die from breast cancer that could have been caught in time.
2. Private health insurance companies may use these new guidelines as a pretext to drop coverage of annual mammograms for women in their 40s. The consequence, of course, is that a substantial group of women will no longer have health insurance coverage for mammograms.
The second issues seems to cause the biggest outrage, and merits asking 'why' at least once.
In the media discussions, the cost of a mammogram was mentioned as being approximately $100. If a health insurance company drops coverage for this procedure, the women, who would previously have the test paid by their insurance company, would now have to spend $100 a year for the test.
Would this additional expenditure be financially ruinous to these women? Considering that people who are covered by private health insurance tend to be in the middle and upper class, it is hard to fathom that spending the equivalent of one month's cell phone or cable bill in order to protect their lives would have any impact on their finances or would make them very upset.
But what would happen to women of any age, who are not covered by health insurance? These tend to be the working poor - not poor enough to qualify for government help, yet not earning high enough income to afford health coverage. If mammograms are no longer covered by health insurance, they are likely to go the way of breast implants - paid out of pocket. As I wrote in a previous post, the prices of medical procedures that were paid out of pocket tended to decrease over time because they were subjected to the same forces of competition that make computers ever better and ever cheaper.
The net result is that as prices of mammograms drop, they will become more affordable and more accessible to the working poor who don't have health coverage. An for those relatively wealthier women with health insurance (who still have to pay out of pocket for their exams) the price will also be somewhat less than the current $100, perhaps dropping to something closer to a pedicure...
Tuesday, September 15, 2009
Why Does Health Insurance Cost So Much?
This is the clearest explanation I've seen of why health insurance costs so much - a John Stossel report on 20/20, courtesy of the Independent Institute's blog. (Follow the link below)
Why Does Health Insurance Cost So Much?
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Why Does Health Insurance Cost So Much?
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