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The Only Cost Reduction Ideas Socialized Medicine Has

February 10, 2012, 10:58 am

I have said for quite a while that despite all the hand-waving about  efficiency and electronic records and other BS  (efficiency from owner of the Post Office?) the only two cost reduction tools that state-run health care have are 1) Price Controls and 2) Rationing.  This has become clear yet again in California.  Allocation of scarce resource by bureaucratic fiat has NEVER worked, not only leading to mis-allocations but generally reducing the size of the pie to be allocated in the process.  The only solution is returning health care to a world (that most every other product and service is in) where consumers have the incentive to shop and make price-value tradeoffs for themselves using prices set by the free operations of supply and demand.

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Category: Health Care
  • me

    *G* And I had been wondering why all my posts with healthcare references never made the comments section ;)

    Socialized healthcare actually can work extremely well. It depends entirely on what anyone means by those words... the US suffers from healthcare with costs that are ridiculously inflated, with immense administrative overhead, rent-seeking barriers of entry and no competitive market on pricing. Removing all of these would have a major impact on the scarcity aspect of healthcare (my favorite example is the older lady visiting the ER to talk and get a bandaid and coming home with a $10k bill that is subsequently picked up by taxpayers; my second favorite is my entrepreneur friend going to the hospital to get a very specific procedure done for cash and the staff being unable to give him a quote on price).

    There is the argument that basic healthcare like bandaids, casts, bloodtests and antibiotics need to be super-expensive to make up for the cost of more difficult procedure. I don't buy that at all. Deregulate, allow competition in medical insurance and make the cheap stuff free to consumers to reduce administrative overhead. And don't forget to reduce my taxes drastically due to all the savings.

  • traderpaul

    "The only solution is returning health care to a world (that most every other product and service is in) where consumers have the incentive to shop and make price-value tradeoffs for themselves using prices set by the free operations of supply and demand."

    Please stop perpetuating the myth that we live in a world where consumers have free choice over a wide array of goods and services. It is an illusion. Unseen in the vast majority of consumer markets are a plethora of rules and regulations that effectively limit consumer choice to a few multi-national brands with little to differentiate between them. The health care market just happens to be the most restrictive of all, both before and after Obamacare.

  • Ted Rado

    When I was a boy in the 30's, there was no health insurance. My father paid $5 for an office visit to the doctor. His office was in his home. Hospital wards looked like army barracks.

    Now we have third party pays. Hospitals look like the Taj Mahal and doctors have large office suites. The patient has no incentive to limit costs. There is a huge disconnect between what you get and what you would be able to pay for without the third party. This could be corrected by going back to some form of user pays rather than third party pays (note that we ultimately pay anyway via the USG or the insurance company).

    One area for which there seems to be no solution is the proliferation of marvelous (and very expensive) new medical procedures and gadgets. Open heart surgery, organ transplants, proton radiation, and a host of new drugs are all wonderful but astronomically expensive. Ultimately, unless we all become medical professionals treating each other, there must be some form of rationing. One cannot spend more on healthcare at the end of one's life than one earned during one's entire lifetime.

    The Brits have what is essentially rationing. The available resources are determined and the total patient treatment is limited to this amount. There are long delays except for emergencies. As far as I am aware, no one has come up with a solution. The idea that some magic program will give us wonderful universal healthcare at reasonable cost is an illusion perpetrated by politicians and dreamers.

  • Jerry

    Healthcare savings of $1+T/year can be realized with UHC. SP/UHC can realize savings over $1.5+T/year. That is merely "matching" costs--what if costs can be beat? BIGGER savings.

  • CTD

    "the only two cost reduction tools that state-run health care have are 1) Price Controls"

    But this isn't a cost reduction strategy. Controlling the price of something has absolutely nothing to do with its cost.

  • Mark

    "The idea that some magic program will give us wonderful universal healthcare at reasonable cost is an illusion perpetrated by politicians and dreamers."

    I am not so sure about that. Right now there are two major problems with health care.

    First, most people's health insurance is tied to either their job or the government.
    Second, people really do not understand what health insurance should be, are way overinsured, and do not even realize that they can get more appropriate health insurance for significantly lower costs than they are paying.

    We need to force teh system to move away from the model of employer paid fringe benefits, particularly health care. The way to do this is to tax as income the value of this compensation. People will then move away from a product chosen to benefit their employer into a product that will benefit themselves.

    And, for most people, that product is an individual health insurance plan with a significant deductible. This is the most cost effective product for almost everyone, you do not have to change insuarance plans (and worry about preexisting conditions) if your employment changes, and with some minor changes in laws, these products could be completely portable across states.

    It is in this sense that states should require every individual to have a minimal health insurance policy with a deductible risk proportional to their income. Allowing free riders in the health insurance pool just makes it more expensive for the rest of us because they only take out, and never put in. One can argue that these free riders are not important. In some cases that is true. If you have a new car (paid for) and refuse to get collision insurance, and then get in an accident that totals your car, boohoo for you.

    However, it is another issue to look a person in they eye and turn them away from potential treatment that could save their life because they cannot afford to pay for it. We do not live in such a society and I do not want to every live in such a society.

    If a person cannot afford health insurance as I described, there are many alternatives. All the Democrats want major government spending increases on health care. Let them, for a start, put their money where their mouths are and create charitible organizations that will help people with their expenses and premiums if necessary.

    Further, there should be an excise tax on health insurance premiums of about 2.5% to create a pool for individuals with preexisting conditions that cannot get regular insurance on an individual basis. These people should then be able to get insurance coverage as normal, except for the preexistig condition. The premium tax shoudl then be used to cover reinsurance premium subsidies for those conditions. This is simple health insurance pool 101.

  • http://www,ilovebenefits.healthcarebenefitsnetwork.com Larry

    One important step to addressing health care costs is to get the health insurers to publish the reimbursement rates they pay to doctors and hospitals for all services. You would be amazed by the price variation within the same town. The health plans are guarding this information and in some cases threatening their customers if they publish their own data to their employees.

  • http://www.ianrandom.com Ian Random

    I love the idea of socialized medicine for Democrats with massive penalties for opting out. Hell, I wish the Republicans had put a rider on Obamacare that required anyone ever covered by a labor agreement to have regular end of life counseling, rather than just any old person. I call these ideas killing with kindness. Now to be serious, I think healthcare needs to be broken up like Medicare. For non-hospital care, people really need a discount buying program like Costco. Hospital insurance truly is insurance in that those are not frequent events like home fires. I was wondering the other day, about a sort of insurance insurance, that would allow people to have had something counting as coverage in the previous 12 months, so they can't be refused underwriting.

  • Roy

    Mark said, "However, it is another issue to look a person in they eye and turn them away from potential treatment that could save their life because they cannot afford to pay for it. We do not live in such a society and I do not want to every live in such a society".

    If you could look at my income and expense records, you would be able to see that I agree with you, Mark, to the extent it makes a substantial change my standard of living (and that before looking at the state transfers via taxes). That is, I agree with your concern for others part. But as phrased without qualifications, I cannot agree. Ponder: spend $100K/year for one person's medical needs vs paying $1K each for the food to give a healthy life to 100 locals in some 3rd world situation. No matter the choice, someone's life will be at stake. 1 octogenarian vs 100 6 yr old kids is something one may not consider, but that lack of considering does not mean no choice got made. How does one choose? How does one factor in the multiple other variables which the choice involves? (How does one take into account subsidizing sloth? How does one take into account minimizing civil unrest?)

    No matter the system, it did involve a bunch of (probably unstated and undiscussed) choices which end up turning away from somebody. We cannot avoid all aspects of "such a society".

  • ElamBend

    Some of the above comments reflect what this half-socialized system we do have has wrought: sp and or uhc can look efficient in comparison. Of course these arguments ignore the fact that a lot of the 'failure' of the market in healthcare isn a result due to distortions caused by state and federal mandate.

    Of course the fact that healthcare is tied to employment (itself a legacy of WWII wgae controls) is an evn further distorter of the system. Given governments already heavy involvement in healthcare I kind of wonder if a sp system that allowed individuals to buy insurance for above the baseline might be preferable.

  • me

    I strongly believe that the first step to healthcare improvement in this country has to be cost reduction. Deregulate the requirements for running a practice that handles run-of-the-mill consulting: draw blood & send to lab, casts, bandaids, antibiotics, histamines, commonly prescribed drugs. 99% of all my medical needs in the last 15 years are covered by that and the rates currently charged due to licensing restrictions are awful. So are wait times.

    For the rest, deregulate the insurance market (let enterprises compete nationwide, lower the barriers of entry). Have a huge-deductible insurance plan as a backstop for people who can't be bothered to get their own private insurance (the entire two-step of "require people to purchase private insurance by a penalty-driven system" is too impractical; this way, if you are uninsured, there is a backstop, it just so happens that you'll be personally liable for a huge amount of the cost).

    Require hospitals to offer the same rates on all procedures to all insured (and cash payers). The current system is pretty bass ackwards (you pay more cash on hand than the insurance company which requires triple resubmission and pays months late?!)

  • Ted Rado

    The problem with healthcare costs is that it is open ended. I have had a heart attack, open heart surgery, a couple of minor strokes, and assorted hospital visits. The cost of all this is astronomical. This got me to thinking about some obvious questions, including the following:

    How much money should be spent on an old man in failing health vs using those resources elsewhere?

    At what point should we let a person with a combination of old age and serious health problems die?

    At some age, should there be a moratorium on expensive medical procedures that may keep the patient alive for another year or two?

    We will all die of something. Most of one's medical costs occur during their last few years of life. It is not a question of humane regard for the elderly, it is simply a money balance. If one sets aside some percentage of the national income for health care, then after this is spent, the patient must die. Everyone cries out "don't let grandma die" for humanitarian reasons, but such an approach is not financially possible.

    Some very tough decisions must be made, and we are all dancing around trying to avoid them. No one wants to seem unfeeling. However, without such tough decisions, our health care system will collapse. All the cutesy paper shuffling schemes will not solve the problem. There is a limited amount of money available for healthcare. This fact must be faced. Yes, improvements can be made, but the basic problem remains.

  • regularjoeski

    Why don't we allow people who can not afford a procedure to be turned away? I can't afford a Ferrari or a supermodel, both will turn me away without money. No one seems to think that is wrong. If a county or state does not want that, then the taxpayers can pay for a bare bones county/state hospital for the indigent. Deregulation, divorcing insurance from employment, getting the federal government out of healthcare, and moving malpractice from tort to contract law would all decrease price/cost and allow true innovation.

  • Craig

    I do think that, based on where we are now with our current system and how people are conditioned to think about health care, that ElamBend's suggestion (that I reinterpret a bit) of universal, basic catastrophic insurance might be best. That eliminates any specter (or bogeyman) of denying someone care because they can't pay. It also eliminates the need for mandates. On top of that, make the market individual. You can go out and buy whatever additional insurance you want, without ridiculous government-mandated inclusions (like birth control or sex-change), and you pay for it yourself.

    Of course, if universal basic catastrophic coverage were introduced, it would gradually be expanded by Democrats to cover more and more procedures, until health care became entirely gov't run.

  • me

    *G* Agree with you, Craig. Ideally we'd get a completely free unregulated market. However, the only politically feasible change we could see in our lifetime would be along the lines of an universal plan with a huge deductible. (I like to call it "free clinics" as a selling point). And as you predict, it'll eventually end up being just as bad as things are now, but at least we'd have the decades in between.

  • Ted Rado

    Many of the posts are insightful, but do not deal with the basic problem. As medical science continues to come up with new expensive treatments, the total cost of healthcare skyrockets. No shuffling of insurance or government schemes will eliminate this problem. At some point, there must be a limit on what can be spent on healthcare. Everybody cannot expect to get open heart surgery, organ transplants, and other procedures ad infinitum.