Rising Health Care Costs are No Mystery

Over the last 50 years, real per capital health care spending has increased substantially.   Certainly there are multiple reasons for this, but the most obvious one is seldom ever mentioned -- that the US has seen huge increases in personal wealth over this period, and unsurprisingly people choose to spend a lot of this extra wealth on their own health and life expectancy.  In an age where consumerism is often derided as shallow and trivial, what could be more sensible than spending money on more and better life?

Many have pointed to the increased technological intensity of health care to explain rising costs.  I suppose this could be true, though in almost every other industry in modern times, increased technological intensity has reduced rather than increased costs.

One issue that does not get enough attention is the prosaic act of shopping.   I spend my own money, and I care about price.  I spend someone else's money, I don't give a rip.  Josh Cothran did a visualization of who is spending health care money.  Just look at the 1960 and 2012 charts, and pay particular attention to the orange "out-of-pocket" number.  Another way to rewrite these charts is to say consumers care about prices for spending in the orange band only.

Update:  Health care cost inflation.  Note cosmetic surgery, a field with significant increases in technological intensity over the last few decades, but for which almost all costs are out-of-pocket

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  • LarryGross

    this more sound bite approach to understanding the issue. Take (for instance), the fact that Medicare covers only 80% of costs and it does not cover dental, eyes nor long-term care. Where is that shown on the chart?

    MedicAid usually does not cover medical care for able bodied people unless they are moms of kids. How is that shown?

    How is EMTALA represented? EMTALA is what pays for uninsured people who do not have Medicare or MedicAid or private insurance?

    the problem with sound-bite - OLOGY is that it actually misleads people into wrong judgments and that more often than not, those that create sound-bite type graphics - have an agenda ... to convince you of something in particular.

    In the internet age - it's called Confirmation Bias.

  • http://www.facebook.com/kevinsdick Kevin Dick

    This is decidedly not a sound byte approach. It looks at the aggregate
    incentives in a complex system. A sound byte approach is, "Nobody
    should go bankrupt because they get sick."

    On the chart, if Medicare doesn't pay, those dollars go to the orange band (unless of course the patient has some supplementary coverage). I believe most of EMTALA goes in "other payer", though it could go in Other Public Insurance for county run facilities.

    The goal of the chart is to get somewhere between sound bites and individual dollar flows to see that the aggregate system seems to be skewed toward paying with other people's money. To "see the forest for the trees" as it were.

    And you have "confirmation bias" backwards. That's the tendency of information consumers to only accept and remember data that confirms their beliefs. Not information producers.

  • LarryGross

    It's sound bite in that it purports to show a relationship between out-of-pocket expenses and health care costs overall.

    what happens with these kinds of charts is that 1. the creator usually has an agenda and you can confirm this by checking other stuff that they have done and 2. - those who have pre-ordained views will look at the graphic to find what supports their preordained views RATHER than developing a deeper understanding of what is really going on - i.e. confirmation bias.

    you are NOT paying with other people's money necessarily just because you have Medicare or MedicAid as both of them require some level of skin in the game also - just as private insurance does.

    The bigger problem applies to ALL kinds of insurance and that is health care costs in general are going up across the board. This also totally ignores the fact that most other industrialized countries pay 1/2 per capita what we do but still have better life expectancies. In other countries, the "out of pocket" conundrum is really different than here...

    but the "agenda" here is to focus on out-of-pocket and govt assisted health care as the basis for increased health care expenses whereas in many other countries including places like Singapore, Hong Kong, Australia, etc... health care is universal and out of pocket is not what is driving health care costs.

    We continue to insist that ONLY IN AMERICA is out-of-pocket a reason for health care costs escalation even as we ignore the larger real-world context.

    we cannot begin to solve our problems when we insist on not dealing with the realities.

  • Nehemiah

    We need to make as many people as possible buyers of healthcare services and then eliminate government regulations except for insurer solvency tests/rules. Can we give market forces a chance, pretty please.

  • LarryGross

    As long as we have EMTALA, the voluntarily uninsured will continue to believe that not having insurance will not result in them being turned away when they do get sick..

    The other part is that people who do have health problems are priced out of the market and that's the primary reason that all - 100% of all industrialized countries including Singapore and Hong Kong have mandatory payroll taxes for health insurance and also mandatory rules that each person gets the same coverage for the same price. The free market will never do this. It's a pipe dream.

    You would think the best countries in the world to "grow" real free market health care would be the developing countries...even 3rd world countries - and the reality is - they actually DO ... but the problem is only the rich can afford it. Everyone else just gets sick and dies unless a charity clinic (usually provided by an industrialized nation) is available.

    If you REALLY want to push the US system closer to free market - make the employer-provided health insurance taxable compensation like it should be and/or allow individuals who buy insurance to also write it off as a tax expense instead of letting them only write off what exceeds 7.5% of their AGI.

    If you want to fix Medicare - repeal the taxpayer-subsidized "gap" insurance and make Medicare truly 20% out of pocket like it was originally designed to be.

    there are things we can do but the biggest obstacle is the tax-free employer provided insurance which is a totally unfair advantage to people who do not have employer-provided insurance and have to pay for their own with taxable money.

  • MingoV

    Rising healthcare costs have two related causes: increased prevalence of third-party payers and clinicians who substitute expensive items (imaging studies, endoscopies, consultations or referrals, expensive lab tests, etc.) for clinical judgment. Example: I'm a clinical pathologist, but I remember how to diagnose knee ligament tears by physical exam alone. Almost all physicians today refuse to diagnose knee ligament injuries without an expensive MRI scan. They can do this because the patients almost never pay directly for their medical care, and the third party payers have little incentive to challenge inefficient care: it's easier to pass on the higher costs to employers or taxpayers.

  • obloodyhell

    }}}} I suppose this could be true, though in almost every other industry in
    modern times, increased technological intensity has reduced rather than
    increased costs.

    Increased tech in other fields means increased automation. Increased
    tech in HC means more specialists in different areas needing to be
    trained and equipped with more and more expensive equipment.

    It's kind of like particle physics. As the tech has advanced, the kind
    of machinery needed to do more work has gotten a heck of a lot more
    expensive.

    The days of innovative work in particle physics done by a couple
    scientists in a meager lab may not be gone totally, but the probability
    of anything truly innovative coming out of there, rather than CERN or
    the SLA or whatever (and/or done in a garage but from numbers/data
    produced by those entities) is very, very low.

    There may come another Stephen Hawking sitting in a chair thinking, but
    the field is much more likely to advance in a more expensive mileau.

    The same seems rather self-evidently true of HC, at least for now.

  • Mike Soja

    --*you are NOT paying with other people's money necessarily just because you have Medicare or MedicAid*--

    Technically, you are correct, but in practice it is not as though one is spending one's own money. There is no readily apparent limit that one has to consider before one undergoes that next procedure.

  • obloodyhell

    }}}} "mandatory rules that each person gets the same coverage for the same price."

    WtF should each person get the same coverage for the same price? That's freaking retarded.

    If I have a family history of cancer, there's no way I should pay the same for coverage as someone who doesn't.

    If I'm a risk taker, BASE Jumping and Rock climbing and the rest so I'm constantly getting broken arms and stuff -- WtF should I get charged the same as some sedentary nerd spending 95% of his time in his mom's basement?

    It SHOULD be a pipe dream, it's an irrational expectation of the world. Things that cost more should ... gawrsh!! cost more!!!

    "Reality Check!!" What a concept!

  • mark2

    The other reason is trial lawyers second guessing the physicians best judgement. If the Doctor can diagnose it 99.5% of the time properly by touch, that remaining 0.5% could result in a mega-million lawsuit, which causes doctors to second guess themselves.

    Similar thing. When I was a kid in the 70's and you broke an arm, unless the bone was in splinters your family doctor set it and put on a cast and you were on your way. When my daughter broke her arm 4 years ago, the pediatrician refused to even look at it. We had to go to the ER, and X-Rays there, and meet an orthopedic surgeon, the pediatrician called for us. I was on an HSA plan that year - so I know the costs. What should have cost us about $500 ended up being $3000. $2500 extra because the pediatrician was afraid of a lawsuit.

  • mark2

    It is a common mistake to dismiss data and facts by claiming the author has a bias. It is much better to point out what that bias is, and HOW IT AFFECTS THE DATA, rather than make your own blanket biased statement.

  • LarryGross

    isn't it the same basic problem also with employer-provided insurance? isn't this a health care issue as much or more so than an entitlement issue?

  • obloodyhell

    }}}} 1. the creator usually has an agenda and you can confirm this by checking other stuff that they have done

    Larry, you seem to have a major problem with the basic definitions of commonly used words.

    "Agenda" doesn't mean "position". One can have a position on an issue without having an "agenda". Because an "agenda" means you're going to push your position at all costs, including both greater and lesser forms of intellectual dishonesty.

    A man with an AGENDA has no principles with regards the AGENDA.

    Does Warren have a position on this? Sure. What the eph kind of total retard bothers to actually take the time to write ANYTHING if they don't have a POSITION on it...?

    Are they going to state things which they believe support their position, and state things which deny the position of the opposing PoVs? Certainly. The difference is, a man with principles will openly ack things which don't support their position, and admit things which support the opposition view. They will, in general, offer explanations why their POV is still the one to take in light of those facts, on the grounds that weighting is important when coming to a decision. Bayes' Theorem..

  • LarryGross

    I like Singapores approach but they have a mandatory payroll tax. Medicare in this country has a similar approach - and that is - it's not good enough to START paying for insurance at the time you need it - because what you should have been paying into it BEFORE you needed is not there, If you WAIT to sign up for Medicare, they will charge you extra to make up for the premiums you did not pay prior to joining. But you can't really do that with someone who goes 10 or 20 years without paying .. they probably could not afford it and would still not get insurance.. just start looking for free health care....

    so you need two pieces to this: 1. people joining and helping to build up reserves and 2. a big enough pool so that people who have more serious illnesses can still be helped and still retain their insurance. There is no non-govt way to do this. this is one of the fundamental benefits that govt can offer.

  • LarryGross

    a position becomes an agenda when you engage in dialog that is slanted, biased, ignores other facts and in general is an obviously non-objective approach - sometimes attempting to masquerade as an objective approach.

    there ARE organizations and people who will take a more objective approach AND disclose their own biases so that the reader understands the context of their words AND understand the opposing positions - the pro and the con.

    I values those kinds of dialog the most.

    In other words, you want to be convinced of something you possibly did not agree with at the front - RATHER than confirm your own existing biases.... i.e. search for the truth.

  • Mike Soja

    --*isn't it the same basic problem also with employer-provided insurance?*--

    Yeah, so? It supports the thesis that Meyer presented.

    The government-created tax break of umpteen years ago was one of the first of many wedges to begin separating the health care user from the health care provider. I've long contended that over the years, the proliferation of employer-provided health insurance fed the notion that everyone should have health insurance, which turned it from a mechanism of risk arbitrage to one of wealth transfer. When everyone has insurance, there need be no actuarial tables. Just sum up the health care used during the year, and dun those who can pay. And that's about where we are today.

    As an addendum to my previous comment, while Medicare dollars to some extent are one's own previously confiscated dollars, I zipped by the fact that Medicaid recipients do indeed have their bills paid out of other people's pockets.

  • LarryGross

    not only does employer-provided health care promote the idea that everyone can get it but everyone can get it for the same price.

    So you'd get rid of the tax breaks for employer-provided health care? Would you also not allow the same premium no matter the actuarial circumstances? So you'd have this country not like every other industrialized country in the world including Singapore and Hong Kong?

    you are correct on MedicAid but if you get rid of MedicAid but not EMTALA, what would happen?

    are you in favor of getting rid of MedicAid AND EMTALA?

  • Ted Rado

    I disagree that new medical procedures reduce cost. If a new machine or procedure replaces an older more expensive method, that is true. However, much of the new stuff is additional expense, rather than a substitution of a better procedure. For example, there was no such thing as open heart surgery a few decades ago. People died instead.
    The old days consisted of a docor with a black bag making a diagnosis, sfter which only relatively simple procedures were available. No doubt our modern medical system is a wonderful thing, but it is very expensive.
    The underlying problem is that we are unwilling to let old and very sick people die without making a monumentl effort in their behalf. This is great from a human compssion point of view, but is not really financilly feasible. I am a beneficiary of marvelous, very expensive, medical procedures (I am 83) but sometimes wonder if it was a waste of money from an objective, financial point of view.

  • LarryGross

    re: "
    No doubt our modern medical system is a wonderful thing, but it is very expensive."

    How do we explain that in virtually every other industrialized country they spend 1/2 of what we do but they all have better life expectancies?

    It would seem that they also use modern technology and they improve life expectancies but somehow they do not spend as much. Is it the new technology that is making health care expensive or is it the way we do it in the US vs other countries?

  • Mike Soja

    --*So you'd get rid of the tax breaks for employer-provided health care?*--

    Yeah, give the breaks to the employee when the employer passes the money it was allocating to health care along to the employee in the form of increased wages.

    --*Would you also not allow the same premium no matter the actuarial circumstances?*--

    Why would I be interested in "allow[ing]" what other people negotiate between themselves? It seems to me that different actuarial circumstances would naturally lead to different premiums.

    --*So you'd have this country not like every other industrialized country in the world including Singapore and Hong Kong?*--

    I never pretend that this country IS like any other country, because it isn't, with the main difference (never referred to by those holding up other countries as models) being homogeneity of population. Canada, Japan, Singapore, Hong Kong, Switzerland, and most of the rest are predominantly of a single culture and/or race. The particular culture and/or race doesn't much seem to matter, but the fact of its uniformity does. You can't turn the U.S. into Canada because the U.S. Americans can't be shoehorned into Canadian style behavior patterns.

    --*you are correct on MedicAid but if you get rid of MedicAid but not EMTALA, what would happen?*--

    Who cares?

  • LarryGross

    okay, so you believe the people who currently have employer-provided insurance will agree to getting the money instead and for some of them - much higher premiums or even the inability to buy it?

    re: industrialized countries - are you serious? we're talking about 50+ countries around the world and they all offer universal health care and we cannot?

    re: EMTALA - is free care for those without insurance and we shift those costs onto folks who do have insurance. You don't care or you don't realize the consequences of having more and more people without insurance but allowed to go to the ER to get care for "free"?

    this is why I say this issue is being debated with sound-bite concepts. When you actually get into the nitty gritty the sound bite ideas won't work..., won't even be politically tenable.

    I'd wager than the first guy that advocates getting rid of employer-provided health care will half a very short half-life subsequently. Quite a few people, the ONLY way they have access to affordable health care is through their employer. If you take that away, they lose their insurance.

  • Mike Soja

    --*we're talking about 50+ countries around the world and they all offer universal health care and we cannot?*--

    It's not a matter of can or cannot, but A) It's a matter of personal liberty, and B) Importing Canadian style health care (which is in its own crisis) isn't going to magically turn the U.S.A. into Canada. It's wishful thinking but ignores the cultural/demographic issues I pointed out up above.

    --* EMTALA - is free care for those without insurance and we shift those costs onto folks who do have insurance.*--

    It's another seemingly common economic ignorance that giving people health insurance somehow magically eliminates cost shifting and free riders. No one who couldn't afford the costs of their own health care without insurance is suddenly going to be flush with the dough to pay for it after being granted health insurance. Someone else is still going to have to pay. All "universal insurance" does is submerge the cost shifting and free ridership under layers of paper and opaque bureaucracies.

    --*won't even be politically tenable.*--

    If what's right becomes any more politically untenable, we're going to have civil war.

  • LarryGross

    singapore universal health care is not in crisis and they have a 25% payroll tax. Sweden is not in crisis - they not only have universal health care but their budget is balanced.

    If people want what Singapore of Sweden is doing and vote that way - isn't that the way our system was set up to work?

    re: EMTALA - people will get health care, even the uninsured, and you will pay for them but you'll pay twice as much because they won't get care until something bad is wrong and will require heroic late-stage efforts - and you will get the bill.

    If Sweden and Singapore can provide Universal health care for 1/2 what we pay AND people have a longer life expectancy AND people vote to do that - what's the problem?

  • Mike Soja

    Yer not wrapping yer head around the demographics, Larry.

    Sweden has a population of approximately 9 million, of which the largest ethnic minority are Swede-Finns, comprising a whopping 5% of the population. Built into that long standing homogeneity is a long standing solid, admirable work ethic (recently decaying with a rise in immigration of young louts reluctant to assimilate, especially with all the free goodies at hand.)

    Now, to start in transferring the Swedish system to America, we'll go small. Let's take Los Angeles. Population: nearly 4 million, with the demographics broken down, according to Wikipedia...

    https://en.wikipedia.org/wiki/Demographics_of_Los_Angeles

    Do you see what's coming, Larry?

    Swedes don't drive like Los Angelenos, or have accidents like them. They don't do drugs the same. They don't feed themselves the same way. They don't apply themselves to work the same way. And they don't use health care the same way, nor is their health care infrastructure remotely like that of Los Angeles.

    I can guarantee that there are widely different number of doctors per population, widely different sorts of injuries and occasions of diseases between the two places. Widely different numbers of hospital beds, with widely different bed use per patient. Different pay scales for health care workers. Etc. Etc. Etc.

    Now tell me how you're going to turn Los Angeles into Sweden.

    By passing some law?

  • Mike Soja

    --*Sweden is not in crisis*--

    Medical innovation has stagnated. Wait times are a problem. Access is a problem. But the books are balanced? Okay.

    I wouldn't want to live there.

  • LarryGross

    well, you've only got 40-60 more countries to go through to prove that none of them are anything like us.

    I don't buy it at all. ALL of those other countries pay 1/2 of what we do and they live longer.

    there is a common thread no matter the various demographics.

    Germany,Singapore, Australia, all pay 1/2 what we do even though they have very different demographics and health care systems with the only real thing in common is universal health care.

    We don't have to be EXACTLY like ANY of them. We can ADAPT the UHC model to what works best for us but what we are doing right now is essentially denying realities,pretending we "could" do something - not done in any other country in the world - an experiment.

  • Mike Soja

    It isn't the "system", Larry. It's the demographics. You will not magically cut health costs in half by going full socialist, and the disruptions would be enormous.

    And consider this: The U.S. Education system is almost fully socialized, just like those 40-60 countries whose health care systems you so admire, but the U.S. spends double what the others do in THAT area. It isn't the system. It's the demographics. It's the different culture. It's the rampant disorganized diversity of people in the U.S. It's the attitude of Americans in the way they buy and use things. It's in the fact that we're very wealthy, and can largely afford our marvelous but expensive health care.

  • Mike Soja

    Reply to LarryGross... The comment system appears to be malfunctioning. This will be my last try...

    It isn't the "system", Larry. It's the demographics. You will not magically cut health costs in half by going full socialist, and the disruptions would be enormous.

    And consider this: The U.S. Education system is almost fully socialized, just like those 40-60 countries whose health care systems you so admire, but the U.S. spends double what the others do in THAT area. It isn't the system. It's the demographics. It's the different culture. It's the rampant disorganized diversity of people in the U.S. It's the attitude of Americans in the way they buy and use things. It's in the fact that we're very wealthy, and can largely afford our marvelous but expensive health care.

  • LarryGross

    well it's not socialist if you are paying payroll taxes, right? It's an individual mandate just like Medicare Part A and Social Security. People pay their own money into the system and get them back as benefits when they need them.

    We do fairly well educationally compared to what we used to do - we are better but the problem is the other countries got even better.

    We have one of the most socialized health care systems in the world - the VA system and the Military health care system. Why not give them both vouchers and let them seek care on the open market? Do you know why? Because they could not get it if they had health care issues. That's the difference between a free market system and a govt system more than anything else. the free market does not "do" health care for those that are sick, elderly or pre-existing.

    read this: Medicare And Commercial Health Insurance: The Fundamental Difference
    http://healthaffairs.org/blog/2012/02/15/medicare-and-commercial-health-insurance-the-fundamental-difference/

  • Ted Rado

    LarryGross:
    There are at least two things that differentiate the US system from others. First, the lawyers. A young doctor in my extended family had to pay $32k insurance premium before he even started practicing medicine. Second, to save their own ass, doctors err on the side of too many tests, xrays, etc. In 90% of the cases, the doctors diagnosis would be sufficient without all the extra expense. Every time I go to the doctor, I get all sorts of tests run, even though my condition has been well known for years. A kid in med school could tell you what my problem is.
    Finally, I have read that in Germany, for example, death of older people is more accepted than in the US. I have known many people (my late wife included) who were hooked up to all sorts of machines, radiated, carved on, etc., when a more rational approach would have been to just make them comfortable and let them die in peace. I have adopted the German idea in my own case. The docs wanted to put in a stent, do dialysis, etc. and I refused. I WILL NOT go through a bunch of unpleasant nonsense on my way to the cemetery.
    Doctors have told me that many patients agree with me. It is the relatives who say "don't let grandpa die". If the doc then does not do everything possible, he will be sued. What a f---- up system.
    Until we are prepared to accept the inevitable end of life, costs, lawsuits, and chaos will continue.
    Modern medicine is wonderful, but it must be appled wisely and within reasonable cost limits. If this notion is criticized as inhumane, so be it. Unless we change our ways, there will be no reduction in health care costs.

  • Larry Gross

    re: torts: "
    According to the actuarial consulting firm Towers Perrin, medical malpractice tort costs were $30.4 billion in 2007, the last year for which data are available. We have a more than a $2 trillion health care system. That puts litigation costs and malpractice insurance at 1 to 1.5 percent of total medical costs. "

    re: end of life costs - AGREE - but we are talking about Medicare here on that issue NOT Universal Health care.

    re: redundant tests and the like - AGREE - but they don't do it to protect from TORT, they do it because it is profitable... our system - whether it be Private or Medicare or Medicaid pays for what is ordered - no matter whether it is needed or not but if we go to a system where we have the administrators get involved in determining need - what happens? We get the old "death panel" rhetoric.

    Why do 50 other industrialized countries NOT have this problem?

    Please note also - people who are uninsured STILL get health care - they just get it after it has become end stage, and requires heroic and expensive taxpayer money to treat.

  • Larry Gross

    re: " ...
    and can largely afford our marvelous but expensive health care." but we can't ... we'll end up with 1/2 of our folks not covered if we keep going the way we are.