• What makes the US health care system so expensive – Conclusion

    If you haven’t read the introduction, go back and read it now.  That introductory post also includes links to all the posts in this series on what makes our health care system so expensive.  Each of these pieces discussed one of the components of unexpected spending that accounts for why our system is so expensive.

    The posts all followed a common theme.  I highlighted how the United States is spending more than you’d expect given our wealth.  Much of this came from the McKinsey & Company study, Accounting for the cost of health care in the United States.

    By now, I hope I’ve impressed upon you the complexity of the problem.  If you listen to politicians, and sometimes advocates, you would think the solution  is easy.  It’s pharma’s fault.  It’s the insurance companies.  It’s trial lawyers.  It’s hospitals.

    No.


    It’s all of those things, and more.  Our system costs more because just about every part of it just costs more.  And curbing that spending won’t be easy.  Much of what we choose to spend money on is stuff that we as Americans seem to value.  Much of that value, unfortunately, isn’t all it’s cracked up to be.

    As I said at the beginning, spending so much extra money would be explainable if the outcomes we were achieving were spectacular.  But a surprising amount of the time they are middling at best and shockingly bad at worst.  I’ve asked you to take that on faith for too long.  So I am going to start preparing my next series for the blog, dedicated to discussing the various metrics and outcomes for the US health care system.

    It’s been interesting to read the emails I’ve gotten over the last two weeks on this series.  Many of you seem to believe I’ve got some secret agenda with respect to how to fix this.  I don’t.  The truth is that I don’t think there is a simple solution.  Some of you on the right think that increased consumer costs will fix the whole thing.  It may, for some sectors, but it will do nothing in others.  Plus, I think it would negatively affect outcomes.  Similarly, tort reform isn’t the answer either.

    Some of you on the left think it will be just as easy if you had your way.  But even if we went to a single-payer system, and significantly decreased insurance costs, that won’t touch the bulk of the problem.  Nor would singling out changes to pharmaceutical spending.

    All of those things would help; they might even be steps in the right direction.  But there are a few things we all have to own up to.  The first is that most of the “extra” spending is in areas of care.  So, please, let’s stop pretending that cost containment can be painless or unnoticed. The second is that, to make cost reform feasible, we will need to have all these sectors share in the pain.  That won’t be popular, but at least it might be fair.  Moreover, it will increase the chances of success.

    The final thing is that we have to stop looking for others to blame.  We are all to blame.  So let’s get past blame entirely, and start dealing with the problem.  Our goal isn’t to reduce our spending to that of other countries.  Our goal is to reduce spending so that it is in line with GDP.  It’s to get spending down to the curve in the above graph.  It’s to get spending down to just the green slice of the pie below:

    UPDATE: I had the wrong first graph in there.  Fixed it.

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    • “Some of you on the right think that increased consumer costs will fix the whole thing. It may, for some sectors, but it will do nothing in others. Plus, I think it would negatively affect outcomes…. most of the “extra” spending is in areas of care. So, please, let’s stop pretending that cost containment can be painless or unnoticed.”

      Does the unavoidable pain of cost containment come from negatively affected outcomes? Or do you have something else in mind?

    • Shouldn’t disease prevalence and defensive medicine be shown in the same way as physician salaries? Aren’t they also already counted in other categories? (Of course, disease prevalence would be messier to show, as it would be spread over at least four categories – inpatient, outpatient, drugs, admin.)

    • Any idea what the ‘Remaining health care spending’ can be broken down to?? It’s still by far the largest chunk…

    • What this series says to me is that the problem in health care is overconsumption. We have more procedures, more hospitals, newer drugs, and more workers. Yet this does not seem to mean better measured outcomes. Health care spending is subsidized by the tax code, and an increasing percentage of the cost is not paid by the consumer. The combination of subsidies and low marginal costs always led to overconsumption. It is the same reason why people eat too much at buffet restaurants.

      • Of the 4 contributing factors you mention – more procedures, more hospitals, newer drugs, and more workers – it’s curious to me that only one of them deals with demand/consumption (procedures). The other three are clearly supply side issues, pointing to a contributing oversupply problem.

        Now that we “get” the numbers part of it (which is the “where” and to some lesser degree the “what” – thank you Aaron and McKinsey, sincerely!), in order to begin addressing solutions for this beast, a next logical step might be to dive deeper into the admittedly more challenging, less quantifiable “WHY?” There’s certainly a heap of “smoking gun” evidence pointing towards a non-insignificant behavioral and even social aspect to this, driving these fundamentals to where they are. But why? What is causing this, here, in this country? Why is it different here than anywhere else?

    • Gnash Equilibrium – I wish I could do that, but it’s not as simple as I would like.

      Cranium Rat – you can go see that here: http://theincidentaleconomist.com/wordpress/why-the-us-spends-more-on-health-care/

    • I’m confused by the title of the pie chart in relation to all the green left in it at the end of the week. Since the title says “Where is the spending higher…?” I thought that the pie would accoount for the full distribution of the “higher” and the green would disappear by the end of the series.

    • Wow, great series with a disappointing conclusion – meaning no real conclusion. Of the items you identify, only outpatient care seems to really matter. Of course, the others do in aggregate, but not one of them is large enough that reducing that one would create a significant win.

      The fragmentation of our system, which others here have mentioned, would seem to be a culprit across all these system.

      It would also be interesting to see which areas of the pie are growing the fastest – my insurance premiums, for instance, are going up at 25% a year – and yet I have no idea why they are going up. What is happening that is causing this explosion in cost? And just to be clear, they were going up this way for years – well before we had any discussion of healthcare reform. Can you comment on the rising costs of insurance?

      Great series!

    • My only healthcare spending for the past year has been 1 H1N1 shot (i have asthma) 1 regular flu shot 1 visit to the eye doctor for a new prescription, $140 of contacts, $140 of glasses.

      So I’ve spent a grand total of ~$400. Currently am I part of the problem? I.E. I am spending too much relative to the wealth of the country compared to other countries?

    • “Some of you on the right think that increased consumer costs will fix the whole thing.”

      This sentence indicates that you don’t understand what people “on the right” are saying.

      Exposing consumers to the costs IS NOT THE SAME as increasing the costs to the consumers. Indeed, the goal of returning price sensitivity to the consumer is that their decisions will force price competition and cost-cutting, which will (in the end) reduce their overall payout.

      We have seen prices of non-covered health care (plastic surgery, cash only clinics and eye-treatments) grow much slower than those that are typically covered. Why? Because the consumers are price sensitive. They make decisions based on price- getting only 2 pain killers instead of a bottle, packaging surgery and taking alternative treatments. This freedom to choose means that there is always an incentive to create cheaper alternatives (to capture Mass Market) and also to create new treatments (to capture early adopters).

    • Hi, Andrew. Thank you for a great series of posts. I wanted to leave this comment at Marginal Revolution, because that seemed like the more appropriate place for airing some pet theories in response to the information in this post, but my data is not good enough for them, or something. Therefore I will post it below – sorry in advance for lowering the tone of the discussion!

      I can understand where the people who are calling for people to pay for the costs of their own health care are coming from: what it comes down to is that it is very, very difficult to shop around for health care treatment based on price. Most hospitals do not publicize how much visits, procedures, etc will cost. It drove my friend, who is NOT insured but IS a serious comparison-shopper, absolutely crazy when she had to be treated for infection. You do not see this level of obfuscation in other service sectors. Maybe this is a holdover from the days when doctors set prices according to what people could afford; after all medical schools still teach that everyone should receive care, whether they can afford it or not (as they should), so there might be a moral component to not talking about money vis a vis health care.

      Or maybe, middlemen such as insurance agents and brokers (whose costs are built into the insurance model) benefit when people seeking treatment are unable to price the care they receive.

      I don’t want to demonize anyone here. I did read your posts, I do understand that our current predicament is not solely the fault of the private insurance industry. To me it sounded like the major problem with the American medical system is that money is not allocated rationally, as it would be if there were more centralized planning (NOT the same as more administrative review by government of costs, which just adds administrative costs).

      And also, of course, all those emergency room visits, which as much as they are a side-effect of the private insurance model, might also have something to do with a culture in which it is very, very difficult for some employees to take any time off in non-emergency situations. That’s not a problem of the health care industry, that’s a problem of our country’s labor laws.

      My “junior graduate” ideas for health care reform include the following:

      1. A mandate that hospitals publicize the costs of all their procedures in a central web database – or even just on their websites, someone will come along to centralize the data. After all, we are no longer living in the days where doctors charge what people can afford. Prices are prices. Other private industries compete on price.

      2. Notwithstanding the above comment, and according to what I saw in your post: health care should be more centrally planned, and hospitals should be larger and more “egalitarian”. What I mean by egalitarian is that the people who can afford a higher quality of care at a smaller clinic should be able to receive such care – IF they pay for the whole cost themselves. Otherwise, it’s off to the same big hospital the poor people use to wait on line like everyone else – no more using insurance to subsidize expensive purchases, which then become more expensive because they are subsidized.

      People who require expensive or experimental treatments because they have rare conditions, but who can’t afford them, can be “scholarship students” (if nothing else they are good R&D cases, no?) but for the vast majority of regular treatment, this should not be an option.

      This would probably be a very politically unpopular solution, though. If people go crazy over terms like “social safety net”, imagine how they’d react to something like “central planning” — even if you made the private health industry actually conform to the dictates of the market at the same time!

      There. I solved the health care crisis in five minutes. ;) Now it’s off to Model UN to solve the rest of the world’s problems, too.

      One question for you: where is the UK on your chart Spending vs GDP? I heard they were having trouble with their system, too.

    • @Dev “We have seen prices of non-covered health care (plastic surgery, cash only clinics and eye-treatments) grow much slower than those that are typically covered. Why? Because the consumers are price sensitive. ”

      Those are also, more importantly, elective procedures – so consumer can afford to shop around. What happens when you have a heart attack? What about major surgery?

      Indeed, the problem with transparent pricing is obvious if you look at how lower income families behave in regard to seeking care – they don’t, usually until it is far too late.

    • @inthewoods
      Most health care costs are not heart attacks- and those can be covered by insurance.

      You can shop around for major surgery. I have. Many people seek second opinions.

      For chronic conditions, there are many options.

      I’d recommend “the innovator’s prescription” for a good intro to how things should work. We need to encourage low cost innovation, not just new 60k/year drugs- of dubious marginal value.

    • @matt Actually, most healthcare costs come in the last 10 years of life – not exactly a time to shop around. But I agree that we need to encourage low cost innovation rather than making another erectile dysfunction drug. But as this series of article point out, drugs and drug costs are not really the problem.

    • I have a question; is their a particular that so much of healthcare has to be provided by doctors instead of nurses, besides the fact that it makes patients feel better to see a doctor? I thought that was what Aaron meant when he said that the extra spending was in the area or care. Maybe I am just ignorant, but isn’t just possible to dumb down the practice of medicine without significantly impacting outcomes? I mean, instead of sending people to doctors, just send them to someone who is paid a third or fourth as much, except for things like surgery or neurology, or for anything that really is non-standard. But really, do obese people, or diabetic people, or people with hyper-tension really need non-standardized care that only an M.D. could provide? Or do we just need to feel good about our visit? I have a feeling that main problem is that utilitarian logic is very, very difficult to apply in a healthcare setting, and other nations, by completely socializing the problem, have been able to do just that. Also, they can scrimp on care for the elderly without making their children feel guilty for not spending more money on healthcare.

      • Case in point – in the UK, pregnant women are looked after by midwives for all of their antenatal care, delivery and postnatal care. They only see a doctor when there is a complication.

    • The problem with health care in the US is that there isn’t enough of it. An inadequate supply, compared to demand, drives up the prices. We subsidize demand, and restrict supply. Med schools have not significantly increased in number in 100 years. The supply of doctors is further restricted by the enormous debt they have to accumulate in med school. Their numbers have to be supplemented with graduates of foreign medical schools.

      Insurance and drug production are also cartels. Obama even went out of his way to reasssure the insurance cartel to get them on board with his health care ‘reform.’ There are not enough hospitals and clinics.

      Increasing the supply will lower prices and ultimatly drive down costs.

      The European countries have shown that demand is essentially limited. Even with nominal prices for most care procedures, they have an adequate, or actually, in many cases a superior, supply of health care services, and low costs wrt their GDPs. Unless the American population is somehow more pathological, their success can, in principle, be repeated here.

      • @Charles St

        “The European countries have shown that demand is essentially limited. Even with nominal prices for most care procedures, they have an adequate, or actually, in many cases a superior, supply of health care services, and low costs wrt their GDPs. Unless the American population is somehow more pathological, their success can, in principle, be repeated here.”

        Another way of saying that there is insufficient healthcare supply is to say that there is too much healthcare demand, and I would suggest that is the case in the US. In European countries, healthcare simply isn’t consumed to the extent that it is in the US. The nonlinear, multiplicative effects observed by the author make perfect sense in light of that. In the US, we ‘super size’ our healthcare consumption every step of the process, while in Europe the proverbial “take two tablets and call me in the morning” methodology reigns supreme.

        A very simple test of this would be to examine whether the rates of emergence of antibiotic resistance is higher in the US than in the EU (presumably as a result of over prescription of antibiotics).

        So to simply state the problem of US healthcare costs: we use it too much. Controlling costs will have less to do with insurance or government spending and more to do with changing how Americans think about their healthcare consumption.

    • @inthewoods-

      Emergency care- truly the “Oh crap, I’ll take whatever you people are offering” situations- represent less than 20% of our nation’s healthcare expenditures.

      Most care- even life-saving care- can be shopped around. My father shopped around for a month before choosing a doctor to perform his angioplasty. And 15 years ago, he would have just sufficed on heart pills and a better diet.

      But when my father shopped around, he didn’t look for the best price or best value according to his unique needs, he shopped around for the best doctor in the city, according to the relevant experts. He was not price sensitive, so obviously he chose to mitigate the maximum risk and maximize his quality of life post-operation.

      Most people will say, “Great, everyone should get maximum quality of life! It’s health care!” But the unseen cost- that everyone bids up the prices of expensive doctors, and gives no incentive for cost-saving- is what kills us. My dad wasn’t EXPOSED to the cost of his choice. That doesn’t mean the cost didn’t exist (or get paid) all the same.

    • “The second is that, to make cost reform feasible, we will need to have all these sectors share in the pain. That won’t be popular, but at least it might be fair.”

      What you are missing is it is more important that everyone in every demographic share the pain.

      Today, cutting Medicare spending is a non-starter, even when the cuts are very reasonable and likely improve quality of life which is more important than quality of care – high quality care that reduces quality of a limited remaining life is in almost all cases a poor choice. The reason it is a non-starter is it seems to be singling out one class of people, or one demographic.

      This is on one level purely self interest – the Medicare set are more reliable voters than almost all other groups, and even if we grant they are wiser for age and experience, one might expect them to vote for their own interests over all other parts of society.

      But another take on it is the “they came for the gays and I didn’t object, they came for the …, then they came for me” principle – singling out cuts for just one group is bad on principle.

      And unfair.

      And let’s be clear that quality of care vs quality of [remaining] life is an issue for the elderly and the young. Painful treatment for an infant that merely delays death is no more troubling than that for someone 90 years old. That the latter occurs more often is no reason to single out the Medicare set for attacking the lack of perspective too often present in our collective thinking.

      But here we find the ultimate absurdity of the US health care system – while resisting merely discussing end of life which we know will reduce costs as a side effect of better [end of] life, we ignore the many people who suffer a poor [end of] life and poor quality of care because they by chance fall into a crack where no money means no care.

      The easy way to cut costs is to expand the group of people who will get lower quality of care [ie none] which is in a sense the Paul Ryan fix – some of the Medicare group will have the bad luck to need more care than their voucher will buy coverage for. But not to worry, there will be no death counselors of death panels to plan care, simple a limit reached on the insurance policy ending care arbitrarily.

      The reasons other nations have lower costs is most everyone – enough – feels they are getting a fair share of the available care – most everyone shares the pain.

      Note that [nearly] everyone accepts some will “win the lotto” of wealth, power, genetics(sports) and get better care. An athlete might get a cutting edge surgery on his shoulder or knee which we probably could not get even if we had a hundred thousand in cash to pay for it. But the working poor will not be denied care because they are poor as they are in the US, so cuts in medical spending will cause pain to the middle class and the working poor – shared sacrifice.

      Health reform might create shared pain, or better, equal pain, which would means better care for some, and doctors and nurses who feel they can serve their poorer patients better. Most likely, health care spending expands first, then comes the pain across the board, but with the fragmented system of care, that shared pain might not be so shared.

    • @Dev “Most care- even life-saving care- can be shopped around. My father shopped around for a month before choosing a doctor to perform his angioplasty. And 15 years ago, he would have just sufficed on heart pills and a better diet.

      But when my father shopped around, he didn’t look for the best price or best value according to his unique needs, he shopped around for the best doctor in the city, according to the relevant experts. He was not price sensitive, so obviously he chose to mitigate the maximum risk and maximize his quality of life post-operation. ”

      And this points to the problem with a “market based solution” – it seems pretty clear it will result in a two-tiered system of medicine – the best for those that can afford it, and the worst for those who can’t. Now, for some people that may not be a moral issue – for me it is. As Milton Friedman once said (paraphrasing here) “market outcomes are not always optimal”, and I would argue that healthcare is one area where having someone make the decision between, say, getting the medical treatment they need or going without is probably not a society I’d like to live in (and there really is no reason beyond our love of our military complex that we couldn’t afford it). Market solutions also assume a rational consumer that will always seek the best solution – and there is no reason, in my opinion, to expect this. I’m a particular fan of behavioral economics which has shown that consumers will often seek non-optimal solutions – basically throws a big wrench in the whole efficient market theory. To see a simple example of this, just ask a consumer to judge risk vs. reward.

      But beyond that – I see no indication that exposing pricing to the customer would necessarily bring down costs – other countries have varying degrees of price exposure, but they don’t have our costs. The clearest difference that I see in our healthcare vs. others is the lack of huge insurance companies. Obviously not the whole puzzle, but it is hard not to look to at that as the biggest difference. France doesn’t have a market-driven healthcare system, and it’s among the best in the world and a lot cheaper than what we have here. And while they are having trouble funding it, just like we are, they could easily solve that by adding even a simple co-pay. The services they get over there are unbelievable as well – so they could cut back on some of those to probably bring it into line in spending.

      In the broadest sense we have a extremely fragmented medical system which is always encouraged to go higher in terms of pricing. Doctor’s degrees going up in price, which means they’ll need higher salaries. Doctors get paid more for providing not just more procedures, but for providing procedures that are more complex or use expensive medical devices. Insurance companies seem to be able to raise prices at will without any market effect because of industry concentration. Medical device and pharma/biotech companies all trying to drive profits up by coming out with a new product for which they can charge more than the product that just went generic. And then you add a consumer that is completely unrealistic about their end of life.

      All adds to an expensive, highly fragmented system that doesn’t produce the best outcomes. Comments welcome.

    • There are at least a couple of elements missing before a full “conclusion” can be reached>

      One is the cost of intermediations in the payments systems; that is, HOW the costs are physically handled as payments.

      Linked to that is the cost tied to the mis-use of a risk-transfer mecahnism (Insurance) as a cost- shifting mechanism.

      We need dis-intermediation in this area as was achieved in the capital accretion areas (e.g. Money MArket Funds) which reduced blocs of extensive transactional costs that had lowered the efficiency of capital deployments.

      R. Richard Schweitzer
      s24rrs@aol.com

    • The problem I have seen in health care is the high instability of Accounts Receivable. The hospitals I have done accounting in faced the problem that they could not know with any certainty when they would be paid, how much they would be paid and what they would be paid for. This then resulted in a system of billing where costs were inflated to cover the uncertainties of payments. Hospital cost accounting is truly bizarre, filled with dubious burdens and vague estimates.

      Purchasing is based on medical needs and practices, not on money on hand or anticipated funds. So, Accounts Payable spends a great deal of time dodging and delaying vendors, who must build the cost of that into their prices.

      Stabilizing AR would greatly help to improve the situation which is why I support single payer. Having one payer with a stable system of payments and dates of payment solves endless financial problems.

    • Robin Hanson thinks we spend way too much on healthcare, partly as a signalling method. He often points to the RAND study.

    • maybe the cost of emergency care is just 20% of the overall, but one thing I have seen increase (albiet anecdotally) is the use of the emergency room for a stomach ache. At my job, we are frequently sending an ambulance and accompanying health care first responders to pick up kids with headaches and nausea after a night of drinking (this is a major college campus) or a bad cold or sore throat, because they aren’t used to having mommy too far away to take care of them and they don’t know what else to do. It’s become cultural to depend on our medical system to make like painless and convenient.

    • @Gus Stupid people will misuse the emergency room, but college kids aren’t the problem in emergency rooms. The problem is people and families without primary care that use the emergency room for that kind of care.

    • So what about “remaining healt care spending”? It’s still a huge part of the pie, and since you seem to cover all aspects of healthcare I really can’t figure out what is it about.

    • “Our goal isn’t to reduce our spending to that of other countries. Our goal is to reduce spending so that it is in line with GDP.”

      OR to bring results up to a level way above what other countries have been able to pull off.

      I agree the former’s more likely, but you DEFINITELY skipped a step there.

    • A quick read, some thought , and a quick explanation for the unaccounted green section of the chart., an indicator of what this country does better than the others:
      Political lobbying and promotion.

    • This discussion seems to be trapped in a ‘real costs’ theory: that costs determine price. The other, more realistic IMHO, idea is that prices determine costs. So, when a price is known for a procedure, that will determine the cost. And then prices will begin to fall into line. Our current system is too much of a crapshoot, encouraging all sorts of larding of bills.

    • One of the fundamental assertions of this series is that the increased cost of health care versus GDP in the U.S. is not buying us anything. If that assertion is not true or perhaps less true than the statement above (“But a surprising amount of the time they are middling at best and shockingly bad at worst.”) indicates, then a lot of the content and comments in this series may be misdirected. I am not saying that I have data that suggests otherwise, but I am saying that I am generally skeptical of metrics and statistics, and even more skeptical when those metrics and statistics are being used to draw conclusions on politically hot topics like health care. So, I guess this means that I am anxiously awaiting the next major parts of this series.

      @dev – “But beyond that – I see no indication that exposing pricing to the customer would necessarily bring down costs – other countries have varying degrees of price exposure, but they don’t have our costs. The clearest difference that I see in our healthcare vs. others is the lack of huge insurance companies.”

      Insurance companies are a big part of the pricing transparency and market competition problem. Most of us have little or no idea how much the medical care that we get really costs. Generally, we are accustomed to paying office visit and prescription copays. We get insurance to cover routine medical care that has nothing to do with what is generally considered insurable-type events. Insurance is intended to protect against low probability high cost events. I suspect that if insurance was used in its proper role and if people paid for the cost of routine or high probability events themselves, that we would see cost/value improvements for routine care.

      One aspect of the health care debate that would seem obvious but is seldom mentioned is that health care is a scarce resource. If this were not so, there would not be any health care debate. Even so, there are some that seem to forget that this is the case as they advocate for ways that they think will allow all to receive the same medical care. Medical care, while extremely important to most, is not any different than any other scarce resource meaning that the most effective way to increase the cost/value relative to other scarce resources over the long haul is through free markets.

    • I would also suggest the ThomsonReuters studies on health care costs. One area you didn’t mention, albeit implicit in the higher than expected costs of patient care: fraud.
      The October 2009 study by TR suggested that the waste in the US health care system, administrative costs of insurance, fraud, high drug prices etc. to be $700 billion/year. A fair piece of this cost, insurance profit and overhead and fraud, is the result of the so-called free market.
      One thing the financial crisis exposed is the cost of that the free market isn’t free.

      Ryan:One aspect of the health care debate that would seem obvious but is seldom mentioned is that health care is a scarce resource….free markets.
      Oh, please, what are you sleeping through these discussions?

    • @ Tom M

      My last statement, which you referenced in your post, probably needs a little more context.

      First of all, let me reiterate from my last post that the entire hypothesis of this series is based on the assumption that we are paying so much more relative to GDP and not getting any benefit. I am waiting to see the details on the evidence behind this assumption in the next part of this series. My past experience has led me to be very skeptical of such data, but I am anxious to see what is presented.

      Second, it was never my intention to imply that what we have today is a well-functioning free market. In fact, I think it is far from it. Competition in much of the medical care industry is circumvented by the fact that consumers do not understand the true cost (both while shopping around and after the fact) of much of the medical care that they receive, and this prevents proper signaling in the market. Also, due to regulation, many insurance companies operate in competition-limited markets, and that’s exactly the way that they want it.

      Also, the comment about the financial crisis exposing that the cost of free markets is not free means that … we should abandon free market principles because we would be so much better off with things being centrally planned and managed? Yeah, there are so many examples out there about how well that works. Free markets are not perfect, but they are so much better than any other type of economic system.

    • You are most certainly looking at the cost thesis incorrectly.

      “Increasing consumer costs” does not help.

      Increasing consumer out-of-pocket costs while decreasing insurance premiums and creating price transparency in the market would do absolute wonders to lowering overall health costs.

      I’m certainly open to someone disagreeing with this, but you are refuting centuries of economic history by doing so. I did go back and read your posts on moral hazard, which somewhat deals with this issue, in kind of a round-about way, but you lost me when you said the $25 co-pay “really hurts”. You summed up our biggest problem with that one sentence. I would challenge you to add up what you and the family have spent eating out over the last four weeks. Do you think of that as “really hurting”?

    • @TT “I did go back and read your posts on moral hazard, which somewhat deals with this issue, in kind of a round-about way, but you lost me when you said the $25 co-pay “really hurts”.”

      While I agree with your overall point about the choices we make as a society and what we prioritize, to say that a $25 co-pay doesn’t hurt, while arguing from a “centuries of economic history” is rather ironic. To the person making $100k, $25 is small change – to the person making $30-40k, $25 is a bigger deal. You are ignoring another central tenant of economic theory – the utility of the dollar vs. income level. As co-pays go up, people seek less medical care – whether they need it or not.

    • It would be great if you added a table that listed the dollar amounts for each slice in the pie chart. I added up the extra costs from each post. The total was more than the $643 billion you mentioned in the introduction.

    • You are definitely out of touch, TT. My husband and I had health insurance through his work for 5 years. We pretty much never used it because we truly could not afford it. The income was not enough to compensate, There are too many people who simply have no idea how out of reach things are for many people. My husband only used our health insurance once in 5 years. It was for an ER room visit (over the weekend) for diverticulitis. Our bill took a year to pay off. It was “only” a few hundred dollars.

      We were not splurging and going out to eat all the time so unable to pay the bill. We made only just enough money to cover minimal food, rent, utilities and gas. Forget shoes, clothes and things like copays!

    • Thank you. The work you have done here is excellent, and I hope you will expand the ideas. I would like to point out that you have not included money from charitable sources that is found in some US health care models.

      In Greenville, SC the hospitals receive over $3 billion / years and the free clinics and sliding scale clinics receive money in addition to that. This is a seperate system than the health department and public services. The money comes from local corporations and from places like the local grocery stores where consumers contribute, unaware, by purchasing from those stores. Pharma supplies the drugs at little or no cost to this system, but this system has little or no access to medical devices or diagnostics testing, and doctors are paid to work with one hand tied behind their back. Patients are abused and so are physicians… it is utterly frustrating! It leaves un- & under-insured patients extremely under-served, sick, and even contagious.

      Also, you did not include expenses like dental care, massage or physical therapy (which has some ties with the tradition medical system, but it typically an out of pocket expense, considered a luxury, but I promise you massage is no luxury for a fibromyalgia patient… it is necessary torture ;o) … or even facials and spa treatments that are extremely effective for people with acne and other immune imbalance disorders that allow for bacterial imbalances… the cost of over-the-counter drugs and professional services for health purposes in this area are 100% out-of-pocket.

      AND the biggest area I hope you will look into is the revolving door problem… Come to Greenville, SC to find an excellent example of the revolving door policy in the hospitals, sliding-scale, free clinics, and the out-of-pocket models of health care. The system is paid for doing nothing but revolving people in and out in way too many cases, to the tune of an astronomical amount of money.

      Thanks for you excellent insight!

    • Seems to me that there is a characteristic of the single payer proposal that’s not factored into the equation. If a single payer pays for all physician care, all hospital care, all drugs, all long term care, and so on, that single payer can control cost The tension would still exist between those who want cost controlled and those who do not want their incomes cut, of course, but the capability to control cost is undeniable.

    • I’ve heard the perspective that as our life expectancy grows longer, our health costs rise, becaues we are exposed to the majority of very expensive health care for a longer peoiod of time. You touched on this when you compared the average age of our population, but this doesn’t necessarily counter-balance age range or distribution. In England, I have heard that the next generation after their Boomers are in uproar, because each worker will have to support two aged retirees! Their issue is that they didn’t create the gold-plated medical system, that the Boomers did, so the Boomers can pay for it! They don’t want to suffer a lower standard of living for thier entire careers because of a system that has built-in inequities. We face the same thing. Boomers here are 76 million and Gen X is 46 million people.

    • All we tend to ignore the real issue and so many experts gloss over it. The business side of health care cost the industry nearly a trillion dollars last year, in waste and lost revenue. Mainly due to the refusal to change to more modern ways of managing these businesses and adopting new more efficient technologies. I could cite the specifics if requested, but we left over 700 billion uncollected from patients who could have paid and payers who paid less than contracted with providers for. We spend 15 cents to collect every dollar billed in health care whereas other industries spend 2 cents. Fix this and all these other issues are manageable.

    • Two observations based on my experience working at a large hospital: I agree with the person who said it is very hard to find out how much care costs. It was astounding to see how many people were going to pay The large but unknown sum to get treatment.
      I don’t know if this is figured into your calculations, but building new hospitals is a big expense for not-for-profit hospitals that actually making a huge profit. We were asked to contribute 12 percent over our costs in my department in order to fund building a new building, which not coincidentally was in a richer part of town and the old hospital that they were closing.
      If you’re wondering why you are suddenly getting comments on this series of articles, it’s because it was posted on Facebook. Very interesting thoughts, wonder how much progress has been made?

    • This article needs to be updated. Great work!!

    • Did you ever deal with statistical issues unrelated to the nature of the healthcare system. A higher level of poor immigrants to the US, for instance, adversely affects some metrics. It’s questionable whether lifespan is a good proxy for healthcare quality. Japanese who maintain their traditional diet have lifespans closer to native Japanese. The murder rate is mostly decoupled from the healthcare system. (though good emergency care can turn a murder into an assault. ) Different countries record stillbirths differently. A baby who lives for 1 day and a baby who is recorded as a stillbirth can impact lifespan statistics, but a baby can be recorded one way or another depending on the country. France doesn’t record stillbirths under 500 grams, and it has a statistically lower stillbirth rate because of that.

      Smoking may actually reduce healthcare costs, by reducing expensive end-of-life care.

      Outcomes of a particular intervention should be considered.

      Do some countries subsidise their healthcare industry by helping doctors pay for their medical educations? (That’s not free, but will result in apparently cheaper healthcare.)

      Also, many government statistics involve cost shifting. In private medical care, the cost of collecting money from customers is rolled into healthcare costs. In public care, the cost of collecting money from customers is NOT considered a part of costs. That cost is shuffled off to the IRS or some other agency. But money spent on accountants, legal tax avoidance (which has a distortionary effect on the economy), and similar isn’t free.