The Intermittent Kevin

As rarely and randomly updated as most blogs

Health care pt. 4: One TRILLION dollars

with 2 comments


Let’s talk about that money thing. Money can be tricky. Everybody went justifiably nuts when the Treasury department suddenly decided to lend $700 billion to banks that had more or less dug their own hole. Now it’s a year later, and lo and behold, we’re actually turning a profit on the whole endeavor. Nutty.

Health care is much more confusing. When we talk about its spiraling costs, we’re usually talking all sorts of transactions: patient out-of-pocket costs, government spending, costs for medicine, doctor salaries and insurance, etc. etc. Plus, some “expenses” are actually “missed revenue” (like the tax subsidies the government provides to cover private insurance). Confoosing.

So when people toss out the “trillion-dollar” number, where’s that money coming from and going to?

Well, first, the cost is a trillion dollars over ten years, i.e. $100 billion per year. (I know, sounds much better, doesn’t it.) Also consider that the government’s existing financing of health care comes to about $1 trillion in 2009 alone, which in and of itself amounts to 60% of all health-care spending in the US(source). So if the bill is paid for evenly across all ten years, then we’re talking about a 10% increase over the 2009 number.

In other words, to say Congress wants to spend $1 trillion on health-care reform is to say Congress wants to increase health-care spending by 10%.

Okay, whew. That DOES sound a bit better. And it sounds a bit more plausible that, to use a popular Democratic line, the plan would “pay through itself through cost savings.” We can save ten percent, right? Right?

The Congressional Budget Office put out a thorough report clarifying all this stuff for us, albeit in mind-melting textual form, with no pictures or anything. I, meanwhile, put pictures of giant bunnies in my essays.

Kevin 1, CBO 0

Kevin 1, CBO 0

Let me try to break down their major points in somewhat simple form:

— Health-care costs, led by Medicare and Medicaid, are increasing at an unsustainable rate. We are fucked if we don’t change something. This isn’t a political view, it’s a fact. So for all the debate in the world, we can pretty much guarantee grandma will be health-care-free in another 20 years at current rates.

— There are three ways to fix the budget problem without cutting services: raise taxes, cut spending, or slow the growth rate of health-care costs. (You can’t stop the growth of costs, since population and medical needs per capita are both increasing.)

— Option C, cutting the growth rate of spending, could be surprisingly effective: if the guv’mint can trim it by 1% per year over the next 20 years—and that’s cutting the rate of growth, not overall spending—the savings would match the cost of expanding coverage to all Americans through a public option.

— Why is this a great idea? Well, “many experts believe that a substantial share of spending on health care contributes little if anything to the overall health of the nation. Therefore, changes in government policy have the potential to yield large reductions in both national health expenditures and federal health care spending without harming health.”

— How do we know the savings are out there? For one thing, Medicare spending varies drastically by region, even if you statistically control for the services provided and demographics of those receiving them. If they can straighten it out, they could cut Medicare spending by… drum roll… thirty percent. Sweet!

The rest of the report details specific health-care policy strategies for saving money, including the following. (This part gets kinda dry, you can scroll down to Steve Jobs if you want.)

1. Create so-called “accountable care organizations,” along the lines of the Mayo Clinic, that offer coordinated patient care across many different providers and cancel out the oft-cited “fee-for-service” program that currently incentivizes unnecessary treatment. (“Evidence for cost savings is mixed.”)

2. Bundle Medicare payments to hospitals, so that a flat rate covers not only the hospital visit, but any care needed in the 30 days following discharge. Why do this? Well, 18 percent of Medicare patients who are discharged from a hospital are readmitted within 30 days, suggesting patients aren’t getting the attention and thoroughness they need. Bundled payments would disincentivize the railroading of patients out the door. (Depending on how aggressively this is implemented, it could save anywhere from $20 billion to $200 billion over a decade!)

3. In the “scary that this doesn’t already exist” department: fund research into the effectiveness of treatments, and pass policies to incentivize treatments proven to be effective, and disincentivize those that aren’t.

4. Expand preventive care, including vaccines, screenings, and encouraging regular check-ups and physicals. (The CBO found this factor to be useful public policy, but surprisingly weak in savings, since the cost of screening many people comes close to the avoided cost of preventing disease in a few people. If that makes sense.)

5. Increase cost-sharing by patients—in other words, higher out-of-pocket costs. Yes you read that right. The CBO believes that with a higher co-pay for certain appointment types, patients would be more responsive to what types of treatment they’re getting, ask better questions, and generally be more prudent in pursuing health care. I can think of a dozen objections to this, but no time to dive into it now.

6. (And finally…) The current tax system, which exempts payments into employer-based insurance from taxes, is almost universally agreed to give an unfair leg up to the employer’s insurance, when other and better insurance plans might be available. Killing the tax exemption, or replacing it with other tax incentives, might free employees up to look elsewhere for their insurance and put competitive pressure on insurance companies that previously had their business locked up with large employers.

Okay, so this post ran long. In conclusion, the $1 trillion price tag is highly expensive, but finding ways to cancel out its cost do exist.

Oh yeah, one more thing...

Oh yeah, one more thing...

One very interesting tidbit buried halfway through the report: a common conservative beef with the health-care system as a whole is how easy it is for (let’s not mince words) lazy people to get care. Just walk into an ER, get treated, and disappear. Even Congressman Carter, in his email to me, pulled a “what the hell?” on me when he cited illegal immigrants (!) as a burden on the health-care system. I’ve heard folks discount talk of universal health care specifically because it would be a reward for cheaters.

Well, according to the CBO, the issue of uncompensated care exists, but turns out it’s not a big one. Hospitals provided $35 billion in uncompensated care in 2008, which is a lot, but is only 2% of the total care provided. Other providers like private-practice doctors report much less of an issue. So sorry, Congressman Carter, those scary illegal immigrants aren’t much of a factor here.


Written by Kevin Miller

September 9, 2009 at 1:55 pm

Posted in Uncategorized

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  1. Hello, I’m a friend of Peter Roger’s. I just wanted to add one little tidbit to the notion that illegal immigrants are adding to health care costs — These immigrants actually tend to have better health than Americans, as they typically do not eat an American diet (preferring to eat more traditional food from their native country), live overall healthier lifestyles, and receive the social support from having a tight-knit family in a collectivist (vs. individualist) culture. In fact, the more time that they spend in America, becoming more and more acculturated, that’s when their health begins to deteriorate.
    (I don’t have a specific source for this information, but it came from a video we watched in a health care-related class I had in the spring.)

    Anyway, thanks for these posts. They’re quite helpful.


    September 10, 2009 at 10:03 am

  2. […] I indicated in my previous post (and back in September), saving money isn’t just a perk of health-care reform; it’s an essential piece of it. […]

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