Health spending growth in the US
Yves Smith at Naked Capitalism brings us news of an important study addressing the issues of determining the costs of medical care, delivery, and insurance:
A remarkably important and persuasive paper that calls into question the need for “reforming” Medicare has not gotten the attention it warrants. “An Examination of Health-Spending Growth In The United States: Past Trends And Future Prospects” (hat tip nathan) by Glenn Follette and Louise Sheiner looks at the model used by the Congressional Budgetary Office to estimate long term health care cost increases. Bear in mind that this model is THE driver of virtually all forecasts of future budget deficits.
This paper, although written in typically anodyne economese, is devastating in the range and nature of its criticisms.
The election for Senator in MA is close and takes a lot of time, so discussion of this topic has received short shrift till later, but reponses are in the works. I have taken the liberty of lifting comments from that thread at Naked Capitalism from run75441, Yves, and reader river.
run75441 says:
Yves:
I have mentioned this before and caught a lot of flak, Elmendorf was one of several who helped kill Hillarycare.
Yves Smith says:
- November 4, 2012 at 1:24 pm
Yes, Dean Baker (along with others) have been criticizing these models for some time, but the fact that it is the folks in the Fed’s fiscal impacts section who have also gone after it (i.e., are not card carrying lefties and therefore don’t have an axe to grind) puts this in a different light.
What is distressing is that Krugman in particular (someone who is seen as knowledgeable about health care and a pinko) has been taking the conventional line.
And further question and answers here:
river says:
November 4, 2012 at 6:57 pm
Long time reader, but haven’t written on here too much, as I am a financial illiterate and find that this blog is above me a great deal of the time.
That said, the overall point of this blog post seems to be that the CBO is simply basing their long range predictions of health care spending based on the overall increase in spending seen over the last thirty years, but what will actually happen is that the cost increases will taper off naturally because they almost have to . . . you can’t have ever rising exponential growth in a world of limited resources.
The question then becomes what will happen to stop the cost increases from continuing their upward march, and what will be the consequences of that occuring. After all of us experiencing this exact same thing play itself out in the housing market, I can only imagine how it would play itself out in healthcare. For the last few years, most of my raises have gone to healthcare cost increases, and I would expect that to continue, but after a while, we would switch to a catestrophic insurance program and just not use the services that they are providing. As the costs keep going up, more and more people would stop getting any insurance. Bankrupcies, and cost pressures on medical facilities will start to hit the practitioners (if all of the antelopes are starving, the lions will soon starve themselves).
Reply
- run75441 says:
November 4, 2012 at 9:00 pm
river:
I have not looked lately; but, commercial healthcare insurance has been increasing in cost at ~8% as opposed to ~2.4% for Medicare (S&P Healthcare Indices). The goal is to get both down to 1% through a series of cost initiatives led by Medicare. Obama has pledged to allow Medicare to begin negotiating healthcare industry services.
The MLR was put in place to control the amount of premiums spent on insurance administration. Within the MLR are risk factors based upon the youngest and healthiest insuree, 150% for smokers (too low), and up to 300% for the elderly. There is also a maximum you will pay as a percentage of income.
I had a discussion today with Maggie Mahar on the growing costs and the attached article. I am sure she would not mind my posting some of her thoughts:
“It seems to me that any attempt to forecast that far out is nuts. Wall Street analysts don’t try to predict a corporation’s finance out more than 3 years– maybe 5– and that’s just one corporations.
They’re talking about healthcare spending– a huge chunk of the economy.They also assume that the aging of America means higher spending.
A number of countries in Europe that have populations that are significantly older than ours have shown that just isn’t true. (I’m thinking of Germany & Sweden in particular).
We’ve always been somewhat hysterical about “What will happen when the Baby Boomers Grow Old!!” We’ll handle it because we have to.
We already know that 1/3 of Medicare dollars are wasted. Cut even 2/3 of that waste, and problem solved. Getting away from fee for service, more efficient systems, refusing to pay for preventable errors, reducing what medicare pays for services we know are not terribly effective; greater use of nurse practitioners, less screening, . . . etc.”
Dan:
What the Fed article and authors do is criticize Elmendorf on his healthcare cost projections. If I have this correctly and I would have to read it again to make sure; Elmendorf can not forecast into the future using historical data and have it overwhelm GDP as something has to give in which case it will be healthcare. This is the thrust of the message the Fed study was pointing out. So maybe Elmendorf’s projections are incorrect.
What the study also said was; the nation can live with 1% growth in healthcare costs annually. As I pointed out we are much closer to the 1% now than we have been historically. As Maggie Mahar has pointed out, the recent slow down in the rising healthcare costs has reduced the expert’s projected healthcare cost by ~$250 billion annually (a savings or a cost avoidance whichever is your ilk). This is happening as hospitals, pharma, insurance companies, and the industry prepares for 2014 and the full-blown version of the PPACA.
Within the study the growth of healthcare cost is detailed in an array of percentages annually and what can be expected at .5%. 1%, 2%, etc. with it taking up GDP. Coming out of this study and modeling was the lower incomes could reasonably tolerate a 1% growth of healthcare costs.
I would add that both Obama and Romney use a 1% growth rate for Medicare/Medicaid, and healthcare costs. Please take the time to read the attached Fed study as this could make a nice discussion. If I can get some time, I will post on its content.
yes, but
try getting “the deciders” to pay any attention to it.
they need health care hysteria to stampede us into killing social security (“has nothing to do with the deficit, but reforming it will give confidence to the bond markets”) and medicare, which has nothing to do with rising health care costs, except provide workers with a reasonable way to pay for them.
not to mention cutting, not slashing, every other government program that annoys the masters because, well, because they can spend the money so much better themselves, and they hate to see the help just idling away their time in unproductive retirement. or collecting unemployment when it’s so hard to get good servants these days.
(please note, i am not talking about the honest rich. i am talking about the alan simpsons and pete petersons.)
The increase in poverty in the coming years in the United States can give reason to this study. The poorer, more social spending on health.
The point to the Follette/Sheiner paper is essentially a repetition of a wise old saw about trend – those which cannot continue will not continue. On the one hand, that observation does show a real weakness in the CBO projection. On the other hand, it doesn’t do so in a way that lets us know how the trend will be difference from the projection.
That second point means the resolution could be bad news, or good. We don’t really have the luxury of leaving the outcome to chance. Obviously, the right solution is to control the cost of individual events of medical care, bringing US costs in line with those in other developed countries, instead of lowering the number of events of medical care.
Basically the point is that even if you fix medicare and medicaid the feds have a problem with TriCare (the armed services program). If we don’t get rid of fee for service which creates at least an apparent conflict of interest if not a real one and move to capitation, and for hospitals like medicare so much for each diagnosis we will not be rid of the cost problem and employeers will drop coverage until only the 1% have health care and the .001% will have to much health care as Michael Jackson did.
Whatever happens to health care costs, Medicare is still the best way workers have to pay for their health care costs after they retire.
By paying a smallish premium every month while working, they essentially pre-pay their expected medical costs while they still have the money.
This is more sensible than waiting until you are old and high risk and low income and trying to pay the premiums based on your age.
It also has the bonus in that by pay as you go, you get to pay “current costs” at current prices. The following generation will pay your higher costs at then current prices… out of their higher income. They won’t lose by the deal because by the time they retire, costs will be higher still… and so on.
Finally, if Medicare is paid for by a dedicated, transparent, capped tax, people will be forced to pay attention to costs, and not rely on some government fairy or “the rich man” fairy to pay for their needs.
And if the tax is “flat”, the poor will actually be receiving a subsidy from the rich, but it’s one that can be rationalized as a cost of insurance against being too poor to pay for medical insurance.
Because it’s capped, the rich will not feel that they are bearing the entire burden of the nations health care, and of course because it’s “flat” the liberal economics professors can call it “regressive,” and that will make them happy too, in their fashion.
Coberly it should be noted that at present what you describe only applys to the hospitalization part A of medicare. Part B physicans fees and out of hospital treatments including oxygen machines and scooters is mostly paid for with general funds, although it is means tested (I wonder about the ignorance of folks who talk about medicare but have not bothered to get the facts, but the of course facts are the enemy of truth.) Likewise part D the drug is means tested and for lower income folks paid for with general funds (In the cases of B &D the base premiums pay 25% it used to be 50% but as the premiums went up the amount did not increase accordingly)
Lyle
my apologies. i was talking about how Medicare should be, not about how it is. You are correct, Medicare has been “welfarized.” Even so, it is still better for workers than private insurance.
A large part of this is the changes in medicine since 1965. Much more can be done outside the hospital than back then. I suspect that at that time part B was small. But to control costs more and more stuff was moved to outpatient treatment and thus part B.
Of course my simple and socialist fix is to legislate that everyone pays the medicare rate, as Japan does where the rates are set.
Lyle
i don’t have anything against your socialist fix, but i don’t think it would work in America. Americans are not politically smart enough (not their fault, they only know what they read in the papers) to understand the relationship between taxes and what they get. So for them “government pays” is either a horrible socialist idea, or simply free care, which of course is what they think health care ought to be: “a right” which no one has to pay for except maybe “the rich.” which is just as much a fantasy as the libertarian or hard right fantasies in the opposite direction.
that might not be so bad but it tends to produce stupid decisions one way or the other.
by paying for their own health insurance in a pretty transparent way, they would be forced to look at costs and decide how much, and what kind, of health care they really need.
this can work if it’s “all of us deciding.” it does not work on the R fantasy basis of individual “wise consumer shopping.”
oh, the problem with part B and other Medicare patches is that it still leaves the retired person scrambling for enough money to pay for the care he actually needs. Medicare done right would pay for ALL the care he will need in retirement.
And I don’t think the cost would be staggering.
The problem is what does all the care he/she needs mean, a heart transplant at 85? A hip replacement at 90? Basically the issue is how we will ration health care by pockebook as we do now i.e. if you have sufficient money you can get all the health care you need and possibly enough to kill you see Michael Jackson, and Anna Nicole Smith for examples of this, which is what the right would prefer or have society draw lines such as suggested above as examples.