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The American health-care system thrives in the uncanny valley between the government and the free market. There are all sorts of laws and regulations that prev

by sethg 15y ago

The American health-care system thrives in the uncanny valley between the government and the free market. There are all sorts of laws and regulations that prevent normal market procedures from working (for example, emergency rooms can’t turn someone away because they can’t pay), but at the same time, American anxiety over “socialism” has prevented Congress from letting the government take a more active role in actually managing the system. Instead you have this weird patchwork of nonprofit institutions, private companies, and public agencies. If I recall correctly, the United Kingdom, with its much-maligned National Health Service, spends about 40% of what the US spends per capita on health care, and yet when you measure things like life expectancy, Britons are as healthy as Americans. That gives you an idea of how much money is going down the tubes due to administrative inefficiency.

yummyfajitas 15y ago
...when you measure things like life expectancy, Britons are as healthy as Americans. That gives you an idea of how much money is going down the tubes due to administrative inefficiency. It's hardly clear the money is going down the tubes due to administrative inefficiency. It might just be spent on unnecessary medicine, and costs might be higher in the US. According to one fairly decent source, administrative inefficiency is a pretty minor contributor - the biggest contributor is outpatient care. http://theincidentaleconomist.com/wordpress/what-makes-the-us-health-care-system-so-expensive-%E2%80%93-conclusion/ http://theincidentaleconomist.com/wordpress/what-makes-the-u...
- llimllib 15y ago
  I'm also certain that much of the unnecessary medicine is provided because of the legal climate in the US; doctors practice under the assumption that they will be sued if they don't provide unnecessary medicine.
  - jbooth 15y ago
    Also, if you pay a bajillion dollars for an MRI machine, then you amortize the cost over the number of times it's used. The times you use it, it's just the cost of electricity. So there's an incentive to use it a lot. That still doesn't explain being charged several thousand for an x-ray, though. That's 150 year old technology, this isn't like Dr. House and a team of neurosurgeons at work here.
    - llimllib 15y ago
      > That still doesn't explain being charged several thousand for an x-ray, though If you want to try and understand this stuff, you have to abandon the idea of the charged cost of a procedure relating to how much it cost to provide. It's truly depressing. This econtalk podcast does a good job diving into the nightmare of non-prices in the medical system: http://www.econtalk.org/archives/2008/12/lipstein_on_hos.html http://www.econtalk.org/archives/2008/12/lipstein_on_hos.htm...
  - deleted 15y ago
    [deleted]
- jbooth 15y ago
  A couple things, first off, if costs are higher in the US, they shouldn't be, we're not living in a radically different reality in the UK. Market forces should be lowering those costs, but they're not, because the actual cost centers are completely insulated from any market whatsoever by the insurance system. RE: administrative inefficiency, from my limited experience (laying off teachers in local gov't back in 2004 because healthcare premiums were going up by 15-18% a year), the administrative overhead in actually managing the insurance is pretty small as a % of the costs paid to hospitals. But then you step back and think, well what the hell, why are the costs paid to the hospitals so high? Because the whole system's broken. So if you try to measure administrative overhead, it looks small, but the general administrative system is creating this environment where the costs themselves are through the roof. Some is unnecessary medicine, a lot seems to be the completely arbitrary price structure. In the linked article, one hospital charged 6 bucks for a treatment, another charged several thousand. That's not a market.
  - fauldsh 15y ago
    One of the reasons it costs less in the UK is because the NHS bargains the costs of drugs (and machinery etc) it buys down. This works partially because they can and do refuse to buy the drugs deemed too expensive. I don't have any statistics to back this up, but because the US system ends up spending as much as the pharmaceutical companies can possibly charge meaning they pay more for the same drugs. Somewhat of a perpetuating system, as the US pays more the pharmaceutical companies can handle the NHS bargaining the prices down some more. It's vaguely analogous to how the lesser paying medicare is subsidized by private insurance.
    - wisty 15y ago
      Note the theory of second best - 2 monopolies (i.e. a union and the owner of a company town; or a health service and the monopoly owner of a patented drug) can negotiate a better and fairer deal than 1 monopoly and a fragmented party. 2 fragmented parties is best (in theory), but that doesn't always happen. But most economists don't learn this in school. They just learn "monopoly = bad, government = monopoly".
  - 15y ago
- tankenmate 15y ago
  You could argue that the reason outpatient care is so high in the US is because people who can't afford, insurance or otherwise, for "normal" care only go to the hospital when their condition becomes acute and emergency departments that can't turn away people have to treat them. You could probably argue that in this case acute treatment cost is higher because the primary condition has been left untreated for so long ; xref the stories of poor children dying from tooth abscesses, something that could normally be treated with $15 worth of antibiotics and $25 worth of dental work; tooth pulled, hardly aesthetic but it works. That $40 of timely intervention is probably hundreds cheaper than a child presenting to emergency with septicemia.
- jellicle 15y ago
  Well, yeah, if you ignore all the studies and only read libertarian blogs, then it's hardly clear. Administration accounts for 31% of healthcare costs in the U.S., and 16% in Canada, for example.
  - yummyfajitas 15y ago
    The views of the bloggers at the incidental economist tend to be moderate liberal. Seriously, go read the blog, and find me a single post indicating libertarian views. I'm sorry that data driven liberalism conflicts with mainstream ideology and your favored talking points.
    - deleted 15y ago
      [deleted]
    - deleted 15y ago
      [deleted]
  - krschultz 15y ago
    The Incidental Economist is the premier healthcare policy blog as far as I can tell. I've been reading it for years, and it is anything but libertarian. They actually have several posts on why competition based schemes will not reduce posts - pretty much the exact opposite opinion of a libertarian. In fact they have two series of posts (one being what Yummyfajitas posted) that are basically required reading for anyone interested in discussing the healthcare problems in the US. I would also recommend their 10 part series on healthcare quality.
dredmorbius 15y ago
Moreso than that: there's a fundamental break from free market assumptions in that use decisions and cost decisions are divorced. Health care recipients (patients) and primary providers (doctors/medical personnel, though to a lesser extent facilities which are more aware of costs) don't bear and/or often don't know the costs associated with a given therapy or intervention. Instead, these are born by and/or negotiated by insurance providers. Even at a given facility, compensation rates for a given therapy can vary widely by insurance carrier, or even by plan within a given carrier. More broadly, this is a problem at other areas of what we consider to be "free market" economies. Healthcare and defense are classic instances, but many group-negotiated services (utility contracts, broadcast media, "free" online services, even Microsoft's software sales channel (mostly OEMs and corporate site licenses, not individual end-users) violate base assumptions of free market economics. While microeconomics is hugely useful describing behaviors in which it applies, I'm increasingly coming to believe that only a small fraction of what we consider to be free market activity in fact meets the core assumptions. But yes: US healthcare is hugely inefficient.

by sethg 15y ago

yummyfajitas 15y ago

...when you measure things like life expectancy, Britons are as healthy as Americans. That gives you an idea of how much money is going down the tubes due to administrative inefficiency. It's hardly clear the money is going down the tubes due to administrative inefficiency. It might just be spent on unnecessary medicine, and costs might be higher in the US. According to one fairly decent source, administrative inefficiency is a pretty minor contributor - the biggest contributor is outpatient care. http://theincidentaleconomist.com/wordpress/what-makes-the-us-health-care-system-so-expensive-%E2%80%93-conclusion/ http://theincidentaleconomist.com/wordpress/what-makes-the-u...

llimllib 15y ago
I'm also certain that much of the unnecessary medicine is provided because of the legal climate in the US; doctors practice under the assumption that they will be sued if they don't provide unnecessary medicine.
- jbooth 15y ago
  Also, if you pay a bajillion dollars for an MRI machine, then you amortize the cost over the number of times it's used. The times you use it, it's just the cost of electricity. So there's an incentive to use it a lot. That still doesn't explain being charged several thousand for an x-ray, though. That's 150 year old technology, this isn't like Dr. House and a team of neurosurgeons at work here.
  - llimllib 15y ago
    > That still doesn't explain being charged several thousand for an x-ray, though If you want to try and understand this stuff, you have to abandon the idea of the charged cost of a procedure relating to how much it cost to provide. It's truly depressing. This econtalk podcast does a good job diving into the nightmare of non-prices in the medical system: http://www.econtalk.org/archives/2008/12/lipstein_on_hos.html http://www.econtalk.org/archives/2008/12/lipstein_on_hos.htm...
- deleted 15y ago
  [deleted]
jbooth 15y ago
A couple things, first off, if costs are higher in the US, they shouldn't be, we're not living in a radically different reality in the UK. Market forces should be lowering those costs, but they're not, because the actual cost centers are completely insulated from any market whatsoever by the insurance system. RE: administrative inefficiency, from my limited experience (laying off teachers in local gov't back in 2004 because healthcare premiums were going up by 15-18% a year), the administrative overhead in actually managing the insurance is pretty small as a % of the costs paid to hospitals. But then you step back and think, well what the hell, why are the costs paid to the hospitals so high? Because the whole system's broken. So if you try to measure administrative overhead, it looks small, but the general administrative system is creating this environment where the costs themselves are through the roof. Some is unnecessary medicine, a lot seems to be the completely arbitrary price structure. In the linked article, one hospital charged 6 bucks for a treatment, another charged several thousand. That's not a market.
- fauldsh 15y ago
  One of the reasons it costs less in the UK is because the NHS bargains the costs of drugs (and machinery etc) it buys down. This works partially because they can and do refuse to buy the drugs deemed too expensive. I don't have any statistics to back this up, but because the US system ends up spending as much as the pharmaceutical companies can possibly charge meaning they pay more for the same drugs. Somewhat of a perpetuating system, as the US pays more the pharmaceutical companies can handle the NHS bargaining the prices down some more. It's vaguely analogous to how the lesser paying medicare is subsidized by private insurance.
  - wisty 15y ago
    Note the theory of second best - 2 monopolies (i.e. a union and the owner of a company town; or a health service and the monopoly owner of a patented drug) can negotiate a better and fairer deal than 1 monopoly and a fragmented party. 2 fragmented parties is best (in theory), but that doesn't always happen. But most economists don't learn this in school. They just learn "monopoly = bad, government = monopoly".
- 15y ago
tankenmate 15y ago
You could argue that the reason outpatient care is so high in the US is because people who can't afford, insurance or otherwise, for "normal" care only go to the hospital when their condition becomes acute and emergency departments that can't turn away people have to treat them. You could probably argue that in this case acute treatment cost is higher because the primary condition has been left untreated for so long ; xref the stories of poor children dying from tooth abscesses, something that could normally be treated with $15 worth of antibiotics and $25 worth of dental work; tooth pulled, hardly aesthetic but it works. That $40 of timely intervention is probably hundreds cheaper than a child presenting to emergency with septicemia.
jellicle 15y ago
Well, yeah, if you ignore all the studies and only read libertarian blogs, then it's hardly clear. Administration accounts for 31% of healthcare costs in the U.S., and 16% in Canada, for example.
- yummyfajitas 15y ago
  The views of the bloggers at the incidental economist tend to be moderate liberal. Seriously, go read the blog, and find me a single post indicating libertarian views. I'm sorry that data driven liberalism conflicts with mainstream ideology and your favored talking points.
  - deleted 15y ago
    [deleted]
  - deleted 15y ago
    [deleted]
- krschultz 15y ago
  The Incidental Economist is the premier healthcare policy blog as far as I can tell. I've been reading it for years, and it is anything but libertarian. They actually have several posts on why competition based schemes will not reduce posts - pretty much the exact opposite opinion of a libertarian. In fact they have two series of posts (one being what Yummyfajitas posted) that are basically required reading for anyone interested in discussing the healthcare problems in the US. I would also recommend their 10 part series on healthcare quality.

dredmorbius 15y ago

Moreso than that: there's a fundamental break from free market assumptions in that use decisions and cost decisions are divorced. Health care recipients (patients) and primary providers (doctors/medical personnel, though to a lesser extent facilities which are more aware of costs) don't bear and/or often don't know the costs associated with a given therapy or intervention. Instead, these are born by and/or negotiated by insurance providers. Even at a given facility, compensation rates for a given therapy can vary widely by insurance carrier, or even by plan within a given carrier. More broadly, this is a problem at other areas of what we consider to be "free market" economies. Healthcare and defense are classic instances, but many group-negotiated services (utility contracts, broadcast media, "free" online services, even Microsoft's software sales channel (mostly OEMs and corporate site licenses, not individual end-users) violate base assumptions of free market economics. While microeconomics is hugely useful describing behaviors in which it applies, I'm increasingly coming to believe that only a small fraction of what we consider to be free market activity in fact meets the core assumptions. But yes: US healthcare is hugely inefficient.