"People want to pay nothing out of pocket themselves, for either health care or health insurance." People also don't realize the extent to which government subsidies and regulations that greatly expand minimum requirements for health insurance increase their out-of-pocket expenses, especially if they consider that tax payments and insurance premiums also come out of their pockets.
I live in a rural small town. My physician used to have a practice with three physicians, some nurses, and six administrators whose sole purpose was processing insurance co. paperwork. My physician decided to become a "direct care" practice. He stopped accepting all insurance, including Medicare. He invited his patients to pay him $49/month, which has since been increased to $60/mo. and remained stable for several years. For that fee patients get 24-hr. telephone emergency access to, no-fee office visits up to 15/year, which I don't think is strictly enforced, basic lab work such as blood draws. There is no additional charge for any service provided during an office visit. They get immediate emergency appointments (during office hours), and non-urgent care within a few days. The practice also provides a limited selection of non-narcotic medications at very low cost. My daily medication costs $9 for a three-month supply. They also have a cash payment arrangement with a large corporate lab. For some lab tests the cash price is less than my insurance co-payment. I treat my insurance (a Medicare Advantage plan) as catastrophic coverage, although they do pay for things like my gym membership.
The moral of the story is that if people are free to make rational decisions based on the relationship between price and quality of service, they can choose to bring down their day-to-day medical costs by paying out-of-pocket.
I profoundly disagree with your statement on the huge income difference in MD's pay; "But that can mostly be explained by how much richer we are than other countries, so salaries have to adjust upward accordingly". This fails to include the most important factor: the effective monopoly the AMA wields over the supply of MD's and its host of restrictions on foreign trained MD's.
When the Sputnik satellite and ICBMs of the '50s and '60s exposed our limited supply of STEM capacities, the response was a massive increase in the education system producing Ph.D.'s in the sciences. These are professions in which the time, knowledge, and training requirements are similar to MD's. It was easy to self-fund your way through graduate school for those with ability, independent of socio-economic background.
The oversupply of physics Ph.D.s became so large by the early '70s that a union pipe fitter working for me, a scientist on a pollution control research project, garnered a weekly paycheck exceeding my bi-monthly check. Meanwhile, the education of MD's conveniently (for them) didn't expand to meet the demand, and the pay ratio between MD's/Ph.D's tripled, and the MD's even controlled the research fundings. In terms of scientific knowledge, the Ph.D's in biophysics, biochemistry, etc. know a lot more about how living things actually work than MD's who just learn the practical applied aspects of the problem. As a result, the AMA imposed limited quantity of MD's has an even larger effect.
Combining the monopoly control over the supply with preventing foreign MD's becoming US workers keeps costs from going down. In addition, there has been the evolution of a truly insane bureaucracy controlling the medical system in which there is near zero price transparency and no strong relationship between price and costs. Consequently, it is actually rather surprising that the ratio between our medical costs and those of the rest of the world is not even higher than just a factor of 2 or so. Give them time.
> If we wanted to win the international life expectancy Olympics, then rather than throwing so much money at medical procedures we should try harder to fight obesity, homicide, drunk driving, and “deaths of despair.”
Really important point. I really wish there was sort of a GiveWell for government programs, to remind the state or lobbyists or whoever to occasionally prioritize the big boring problems (when there are available interventions).
This blogger is trying to raise grant money to study if the obesity epidemic is partially the result of a contaminant, and has some really compelling leads to suggest this might be the case:
"Those additional colonoscopies don’t move the needle a perceptible amount when it comes to average life expectancy."
But they do provide valuable information. Americans with colon cancer get their diagnosis earlier than Canadians, and have more time to plan their personal response to the illness. And Americans without colon cancer are in a better position to know that they aren't ill, and enjoy the reassurance of that knowledge.
Lifespan outcomes are not the only meaningful benefit of health care. This is simply a blind spot of Robin Hanson's.
You point out that, if we favor long life expectancies, “we should try harder to fight obesity, homicide, drunk driving, and ‘deaths of despair’.” Well, let me assure you that I am doing my part. Through diet and exercise, I avoid obesity in myself. (I do not know how much of this is virtue and how much is a fortunate genetic predisposition to thinness.) I strictly avoid committing homicide, and I try hard not to be a victim myself. I do not drive (or do anything else) while drunk, nor do I encourage others to do so. I am not depressed; if I were, I would seek psychiatric treatment. I do not strenuously attempt to influence the behavior of others in these respects, but only out of respect for their autonomy together with pessimism about my prospects for successful influence.
We should get rid of employer "provided" health insurance and let everyone buy their own with their health insurance tax credit (same as the child tax credit, except that everyone has health and not everyone has children).
Great piece, Arnold. The sentence I thought was most interesting was: "The government has managed to regulate small medical practices out of existence, forcing consolidation into giant provider networks with more bargaining power over insurance companies."
I think some of this was government regulation driven by lobbying by the healthcare industry. But also I think some of it was that for a long time, being a doctor meant being a small business owner, and I don't think most doctors were good at doing that. Each practice required billing and administration. It makes a lot more sense to consolidate some of that - a practice in which a doctor can just be a doctor, with a team that can do the administrative stuff that is non-value-add.
Surely healthcare billing is one of the least useful jobs in existence, so the more we can consolidate those roles, the better, right?
“The reason that we spend more on health care is not higher prices. Yes, if you compare doctor salaries in the U.S. to doctor salaries in another country, we pay more. But that can mostly be explained by how much richer we are than other countries, so salaries have to adjust upward accordingly.”
Very interesting. In some ways this lines up with the “contrarian take” from RCA that SA links to. RCA also says American Health Care spending is primarily a function of our standard of living, but claims the issue is not doctors’ salaries (or prices more generally) but the quantities of health care we buy.
As to his question about Drug Price Negotiations, the big players get better deals than the little players, and that gives them a competitive advantage in selling drug insurance, which is very profitable.
The large increases in drug prices are because the structure of many government insurance programs is such that higher list prices are advantaged in bids, even if net prices are the same. Also the disconnect between list and net is how the big players hide their negotiating advantage from the little players.
Ending this practice technically "costs the government money" because member cost shares are 25% * list price so if list prices come down members pay less for their drugs and therefore the government has to make up that shortfall in the total revenue. So if the government stops ripping off its own constituents the CBO looks on that poorly and as we all know CBO scores are the one and only holy truth by which we judge government policy.
People have made hay of government negotiating drug prices, but in many ways I think they push it off to insurers because they don't want the flak of having to deny coverage. You get rebates by threatening to make drugs not covered. They also don't have a huge incentive to negotiate (private insurers make more money if they get bigger rebates, but government employees get the same pay). The biggest obstacle to lower (net) drug prices is that the government requires you to cover so many drugs. If they force you to cover it, then you have no negotiating leverage. Attempts to limit the coverage requirements fail over and over again, even though they are excessive from a clinical POV.
Another issue is that the difference in health cost between the USA and rest of the world mainly occurred before 2000. And it didn't happen because we just all of a sudden decided to pay twice as much, but because our medical cost trend was just a few % points higher for a long period of time.
But that is mostly in the rearview mirror. Yes, we have high costs now but the trend isn't all that different and the only way to correct past trend adding up would be huge one time reductions. There is zero evidence that any system around the world is able to suddenly declare that its going to reduce its healthcare sector by half.
If Norway, #1 standard of living in the world with the worlds highest ratio of medical personnel to population pays the medical community a pittance, that totally aligns with what Scott Alexander says. And a procedure, colonoscopy, that has really only been around as we know it today for 25 years would only just now causing effect on the number of 80+ age people here.
Great post Arnold. I'm going to read again your book.I read it when I was not interesting in health care and finance systems but now I'm doing research on Covid and I'm trying to explain how different national systems have been responding to the virus, the disease, and the pandemic. For it, I need to understand and compare the national systems of the few countries in which I'm interested. Let me ask you about your view of the new book "The U.S. Healthcare Ecosystem -- Payers, Providers, Producers" by Lawton Robert Burns. I'm starting reading it and I appreciate greatly Burns' effort to describe the whole ecosystem of your country. Indeed, it's one populated by "different species" interacting in ways hard to describe and much harder to explain (I don't remember any other book on any other "industry" focused on the complexity of so many human interactions).
"People want to pay nothing out of pocket themselves, for either health care or health insurance." People also don't realize the extent to which government subsidies and regulations that greatly expand minimum requirements for health insurance increase their out-of-pocket expenses, especially if they consider that tax payments and insurance premiums also come out of their pockets.
I live in a rural small town. My physician used to have a practice with three physicians, some nurses, and six administrators whose sole purpose was processing insurance co. paperwork. My physician decided to become a "direct care" practice. He stopped accepting all insurance, including Medicare. He invited his patients to pay him $49/month, which has since been increased to $60/mo. and remained stable for several years. For that fee patients get 24-hr. telephone emergency access to, no-fee office visits up to 15/year, which I don't think is strictly enforced, basic lab work such as blood draws. There is no additional charge for any service provided during an office visit. They get immediate emergency appointments (during office hours), and non-urgent care within a few days. The practice also provides a limited selection of non-narcotic medications at very low cost. My daily medication costs $9 for a three-month supply. They also have a cash payment arrangement with a large corporate lab. For some lab tests the cash price is less than my insurance co-payment. I treat my insurance (a Medicare Advantage plan) as catastrophic coverage, although they do pay for things like my gym membership.
The moral of the story is that if people are free to make rational decisions based on the relationship between price and quality of service, they can choose to bring down their day-to-day medical costs by paying out-of-pocket.
I profoundly disagree with your statement on the huge income difference in MD's pay; "But that can mostly be explained by how much richer we are than other countries, so salaries have to adjust upward accordingly". This fails to include the most important factor: the effective monopoly the AMA wields over the supply of MD's and its host of restrictions on foreign trained MD's.
When the Sputnik satellite and ICBMs of the '50s and '60s exposed our limited supply of STEM capacities, the response was a massive increase in the education system producing Ph.D.'s in the sciences. These are professions in which the time, knowledge, and training requirements are similar to MD's. It was easy to self-fund your way through graduate school for those with ability, independent of socio-economic background.
The oversupply of physics Ph.D.s became so large by the early '70s that a union pipe fitter working for me, a scientist on a pollution control research project, garnered a weekly paycheck exceeding my bi-monthly check. Meanwhile, the education of MD's conveniently (for them) didn't expand to meet the demand, and the pay ratio between MD's/Ph.D's tripled, and the MD's even controlled the research fundings. In terms of scientific knowledge, the Ph.D's in biophysics, biochemistry, etc. know a lot more about how living things actually work than MD's who just learn the practical applied aspects of the problem. As a result, the AMA imposed limited quantity of MD's has an even larger effect.
Combining the monopoly control over the supply with preventing foreign MD's becoming US workers keeps costs from going down. In addition, there has been the evolution of a truly insane bureaucracy controlling the medical system in which there is near zero price transparency and no strong relationship between price and costs. Consequently, it is actually rather surprising that the ratio between our medical costs and those of the rest of the world is not even higher than just a factor of 2 or so. Give them time.
> If we wanted to win the international life expectancy Olympics, then rather than throwing so much money at medical procedures we should try harder to fight obesity, homicide, drunk driving, and “deaths of despair.”
Really important point. I really wish there was sort of a GiveWell for government programs, to remind the state or lobbyists or whoever to occasionally prioritize the big boring problems (when there are available interventions).
This blogger is trying to raise grant money to study if the obesity epidemic is partially the result of a contaminant, and has some really compelling leads to suggest this might be the case:
https://slimemoldtimemold.com/2021/07/07/a-chemical-hunger-part-i-mysteries/
Excited to see where that goes.
"Those additional colonoscopies don’t move the needle a perceptible amount when it comes to average life expectancy."
But they do provide valuable information. Americans with colon cancer get their diagnosis earlier than Canadians, and have more time to plan their personal response to the illness. And Americans without colon cancer are in a better position to know that they aren't ill, and enjoy the reassurance of that knowledge.
Lifespan outcomes are not the only meaningful benefit of health care. This is simply a blind spot of Robin Hanson's.
You point out that, if we favor long life expectancies, “we should try harder to fight obesity, homicide, drunk driving, and ‘deaths of despair’.” Well, let me assure you that I am doing my part. Through diet and exercise, I avoid obesity in myself. (I do not know how much of this is virtue and how much is a fortunate genetic predisposition to thinness.) I strictly avoid committing homicide, and I try hard not to be a victim myself. I do not drive (or do anything else) while drunk, nor do I encourage others to do so. I am not depressed; if I were, I would seek psychiatric treatment. I do not strenuously attempt to influence the behavior of others in these respects, but only out of respect for their autonomy together with pessimism about my prospects for successful influence.
We should get rid of employer "provided" health insurance and let everyone buy their own with their health insurance tax credit (same as the child tax credit, except that everyone has health and not everyone has children).
Great piece, Arnold. The sentence I thought was most interesting was: "The government has managed to regulate small medical practices out of existence, forcing consolidation into giant provider networks with more bargaining power over insurance companies."
I think some of this was government regulation driven by lobbying by the healthcare industry. But also I think some of it was that for a long time, being a doctor meant being a small business owner, and I don't think most doctors were good at doing that. Each practice required billing and administration. It makes a lot more sense to consolidate some of that - a practice in which a doctor can just be a doctor, with a team that can do the administrative stuff that is non-value-add.
Surely healthcare billing is one of the least useful jobs in existence, so the more we can consolidate those roles, the better, right?
“The reason that we spend more on health care is not higher prices. Yes, if you compare doctor salaries in the U.S. to doctor salaries in another country, we pay more. But that can mostly be explained by how much richer we are than other countries, so salaries have to adjust upward accordingly.”
Very interesting. In some ways this lines up with the “contrarian take” from RCA that SA links to. RCA also says American Health Care spending is primarily a function of our standard of living, but claims the issue is not doctors’ salaries (or prices more generally) but the quantities of health care we buy.
https://randomcriticalanalysis.com/why-conventional-wisdom-on-health-care-is-wrong-a-primer/
As to his question about Drug Price Negotiations, the big players get better deals than the little players, and that gives them a competitive advantage in selling drug insurance, which is very profitable.
The large increases in drug prices are because the structure of many government insurance programs is such that higher list prices are advantaged in bids, even if net prices are the same. Also the disconnect between list and net is how the big players hide their negotiating advantage from the little players.
Ending this practice technically "costs the government money" because member cost shares are 25% * list price so if list prices come down members pay less for their drugs and therefore the government has to make up that shortfall in the total revenue. So if the government stops ripping off its own constituents the CBO looks on that poorly and as we all know CBO scores are the one and only holy truth by which we judge government policy.
People have made hay of government negotiating drug prices, but in many ways I think they push it off to insurers because they don't want the flak of having to deny coverage. You get rebates by threatening to make drugs not covered. They also don't have a huge incentive to negotiate (private insurers make more money if they get bigger rebates, but government employees get the same pay). The biggest obstacle to lower (net) drug prices is that the government requires you to cover so many drugs. If they force you to cover it, then you have no negotiating leverage. Attempts to limit the coverage requirements fail over and over again, even though they are excessive from a clinical POV.
Another issue is that the difference in health cost between the USA and rest of the world mainly occurred before 2000. And it didn't happen because we just all of a sudden decided to pay twice as much, but because our medical cost trend was just a few % points higher for a long period of time.
But that is mostly in the rearview mirror. Yes, we have high costs now but the trend isn't all that different and the only way to correct past trend adding up would be huge one time reductions. There is zero evidence that any system around the world is able to suddenly declare that its going to reduce its healthcare sector by half.
If Norway, #1 standard of living in the world with the worlds highest ratio of medical personnel to population pays the medical community a pittance, that totally aligns with what Scott Alexander says. And a procedure, colonoscopy, that has really only been around as we know it today for 25 years would only just now causing effect on the number of 80+ age people here.
Great post Arnold. I'm going to read again your book.I read it when I was not interesting in health care and finance systems but now I'm doing research on Covid and I'm trying to explain how different national systems have been responding to the virus, the disease, and the pandemic. For it, I need to understand and compare the national systems of the few countries in which I'm interested. Let me ask you about your view of the new book "The U.S. Healthcare Ecosystem -- Payers, Providers, Producers" by Lawton Robert Burns. I'm starting reading it and I appreciate greatly Burns' effort to describe the whole ecosystem of your country. Indeed, it's one populated by "different species" interacting in ways hard to describe and much harder to explain (I don't remember any other book on any other "industry" focused on the complexity of so many human interactions).