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:
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).

  • run75441 says:
    November 4, 2012 at 9:00 pm
    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.”