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Princeton economics professor, Uwe Reinhardt has an article in the New York Times discussing health care costs in the US. Uwe has been working on the economics of health care for over 20 years. In the article, he identifies the main factor. In his opinion it is NOT greedy (fill in the blank) insurance companies, doctors, hospitals, drug companies, etc.


The question, not addressed in the article, is who bears the blame for this chaotic, private-sector price system. The only fair answer is: American employers. Who else could it be?

I have been critical of employment-based health insurance in this country for more than two decades. In the early 1990s, for example, at the annual gathering of the Business Council, I bluntly told the top chief executives assembled there, “If you want to find the culprit behind the health care cost explosion in the U.S., go to the bathroom and look in the mirror.” After years of further study, I stand by that remark.

. . .
Alas, in their self-appointed role as purchasing agents in health care, American employers have arguably become the sloppiest purchasers of health care anywhere in the world. The chaotic price system for health care is one manifestation of that sloppiness.

For more than half a century, employers have passively paid just about every health care bill that has been put before them, with few questions asked. And all along they have been party to a deal to keep the chaotic price system they helped create opaque from the public and even from their own employees. Only very recently and very timidly have a few of them dared to lift the veil a little.


One consequence of this opaque pricing system has been that, according to the 2013 Milliman Medical Index, the average cost of health care of a typical American family of four under age 65, and insured through an employer-sponsored preferred provider plan, is now $22,000, up from about $10,000 a decade earlier. It is a staggering amount, not only by international comparison, but also when compared with the distribution of family income in the United States, with a median income of $50,000 to $60,000.


He proposes two possible solutions and makes the prediction which one will prevail:


Because an all-payer system is highly regulatory, I predict the private health care market in the United States will sooner or later lapse into full-fledged reference pricing. It would entail ever more pronounced rationing of quality, real or imagined, by income class.

But such tiering has long been the American way in other important human services – notably justice and education. Why would health care remain the exception?



The article is brief and is worth your time if you have any interest in health care costs.

Thanks,

Yodaorange


[1] Uwe Reinhardt, NY Times: The Culprit Behind High US Health Care Prices
http://economix.blogs.nytimes.com/2013/06/07/the-culprit-beh...
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The question, not addressed in the article, is who bears the blame for this chaotic, private-sector price system. The only fair answer is: American employers. Who else could it be?

We don't expect to get auto insurance through our employers. We don't expect to get homeowner's insurance through our employers. People who actually look at what life insurance they need, either don't bother with getting life insurance through their employer at all or supplement those joke policies with much larger policies they buy on their own.

Why do we expect to get medical-care insurance through our employers? Does the learned professor who is blaming employers for the mess of health-care costs, address this question?
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I might point out that the all-payer sort of plan is not necessarily bad. The article points out the sad fact that employers have not (for a number of reasons - not all of them their fault) negotiated for better value. The all-payer plan would pit the insurance companies as negotiating parties against the health care providers - where both sides understand the underlying economics - and may provide far better value.

To the end user, assuming an appropriate level of health care service, lower prices (regardless of which party ends up acting as their advocate) provides the sought after benefit.

The alternative would be to have government provide this service but, as we've sadly seen over the past few years, politics and the leverage which our system of lobbyists can bring to bear, are unlikely to allow our government to properly advocate for its constituency.

Jeff
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Warrl asks: Why do we expect to get medical-care insurance through our employers? Does the learned professor who is blaming employers for the mess of health-care costs, address this question?

Hi Warrl, my apologies for not excerpting that section from the article. Yes, the professor explains the origin of employer paid health care. It was a way to get around wage controls in WW2. Employers could NOT give raises, but COULD give them paid for medical insurance.

The ACA (Affordable Care Act) MIGHT cause some companies to stop providing employee health care. The economics of it are clear cut that the company will come out ahead. Employees will NOT like a benefit being taken from them, so economics might not be the determining factor. Like many aspects of ACA, this is one of the great unknowns. No point in arguing about it now, just wait and see how it falls out.

Thanks,

Yoda
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The ACA (Affordable Care Act) MIGHT cause some companies to stop providing employee health care. The economics of it are clear cut that the company will come out ahead.

I disagree the economics are clear cut. The simple reason is that right now the economics are even more favorable for companies to drop health insurance than they will be when the ACA is fully implemented. Right now, there are no fines or anything. Companies could drop health coverage tomorrow and the savings would go straight into their pockets.

The reason they don't is mostly supply and demand. Workers expect a certain level of compensation in exchange for labor. If you provide less compensation than your competitors (in this case by dropping health insurance), then you can't attract or retain workers at a given skill level. So lowering compensation look good on paper, but then your employees might no longer be interested in working at your company.
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But such tiering has long been the American way in other important human services – notably justice and education.

Uwe needs to get a clue. Tiering has long been the HUMAN way in ALL aspects of life. Since forever.

JLC
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Warrl asks: Why do we expect to get medical-care insurance through our employers? Does the learned professor who is blaming employers for the mess of health-care costs, address this question?

Hi Warrl, my apologies for not excerpting that section from the article. Yes, the professor explains the origin of employer paid health care. It was a way to get around wage controls in WW2. Employers could NOT give raises, but COULD give them paid for medical insurance.


So, he blames employers even though he identifies that it's the government that causes employers to become involved.

Interesting.
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So, he blames employers even though he identifies that it's the government that causes employers to become involved.

But I don't think that is the point. Government can only do what politics and Congress allows it to do.

Employers in the US have traditionally provided health insurance. And all those voters who are satisfied with their current employer provided plan have no intentions of giving it up.

Secondly, the ability of employers to negotiate deals with health care is negligible. Most rely on insurance companies to negotiate for them. They refuse to cover expenses they feel are unwarranted. They have had some success. But not enough.

Thirdly the health care industry knows full well how to undermine any efforts to change the health care system. Stories of rationing health care. Stories of my dying loved one was denied what someone thought was a miracle cure.

We are fortunate that Obamacare got through Congress. Before that people thought any legislation was hopeless. We see the intensity of opposition even to that. It will probably get revisited one of these days. We shall see what survives. But rapidly rising costs means the alternative to Obamacare is most likely bankruptcy.
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But such tiering has long been the American way in other important human services – notably justice and education. Why would health care remain the exception?

Most people have little contact with the justice system other than for relatively minor infractions. Hence, that tiering is recognized but also seen as not having a major impact on most people.

In education, people choose what they want--and the cost of what they want vs what they can afford is clear. Those who are truly skilled in an area are able to get scholarships--which is why those scholarships exist. People who desire certain training/education, but can not afford to buy or pay for it on their own or get a scholarship, are forced to make choices.
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The question, not addressed in the article, is who bears the blame for this chaotic, private-sector price system. The only fair answer is: American employers. Who else could it be?

I have been critical of employment-based health insurance in this country for more than two decades. In the early 1990s, for example, at the annual gathering of the Business Council, I bluntly told the top chief executives assembled there, “If you want to find the culprit behind the health care cost explosion in the U.S., go to the bathroom and look in the mirror.” After years of further study, I stand by that remark.


This makes a LOT of sense. Consumption of anything increases when someone else is paying for it.

Thanks for posting this.
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This makes a LOT of sense. Consumption of anything increases when someone else is paying for it.


now I get it. This is why the rich consume so much, because we are buying their Chinese made goods.

Suppliers are anti American and always have been.

Dave
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It's clearly un-Constitutional for private enterprise to be taxed when it won't purchase a commodity--in this case health insurance.


See what I mean folks? Supply side economics keeps people very ignorant.

Some people would vote to send their mothers down the river just to prove their stupidity.

Dave
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But rapidly rising costs means the alternative to Obamacare is most likely bankruptcy.

Yeah, just what we needed, yet another ever increasingly bloated Fed program, written by congresscritters for the purpose of vote buying.
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Yeah, just what we needed, yet another ever increasingly bloated Fed program, written by congresscritters for the purpose of vote buying.

What we really need is a disinformation style rethink project for the masses with congress critters only taking money from the top and then screwing the rest of the country into the ground. Ooops we already have that, never mind.

Dave
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now I get it. This is why the rich consume so much, because we are buying their Chinese made goods.

Dave, your wealth envy is showing.
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Primary cause of high US healthcare costs
=======================================

Government intervention. Period!
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Those who can, do; those who can't, teach.
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It was a way to get around wage controls in WW2

Government intervention affects employer behavior.
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So lowering compensation look good on paper, but then your employees might no longer be interested in working at your company.

Right, it's an employee's market out there. They call the shots because there are so many more jobs than people to fill them.
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Dave, your wealth envy is showing.

As is your anti Americanism to put it nicely.

Dave
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Those who can, do; those who can't, teach.

I am pretty sure there is a third group that you fall into and I will give you a hint, you are neither doing nor teaching.

Dave
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I am pretty sure there is a third group that you fall into and I will give you a hint, you are neither doing nor teaching.




That's right, I gots my 0bama phone, I be on welfare, get food stamps and free section 8 housing. And folks like you be payin' fo it. hehehe
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Government intervention. Period!

BHJ,

Don't forget the ambulance chasers, while you're at it.

...A 2003 report from the General Accounting Office found multiple reasons for [medical malpractice] rate increases, with medical malpractice lawsuits being the primary driver.[18] Despite noting multiple reasons for rate increases, the report goes on to state that the "GAO found that losses on medical malpractice claims-which make up the largest part of insurers’ costs-appear to be the primary driver of rate increases in the long run."

...In 2011, data pooled from the industry by the publication Medical Liability Monitor indicated that medical malpractice insurance rates had declined for four straight years. The decrease was seen in both states that had enacted tort reform and in states that had not, leading actuaries familiar with the data to suggest that patient safety and risk management campaigns had had a more significant effect...

The majority of the American public supports reforms to the malpractice system. However, surveys show that the majority of the American public also vastly underestimate the extent of medical errors...

Many doctors practice "defensive medicine" in order to avoid malpractice suits. This also drives many students away from entering the medical field.


http://en.wikipedia.org/wiki/Medical_malpractice

We need both tort reform and also more universal acceptance and adherence to "best practices" - with staff training to strictly follow checklists, so that the number of medical errors can be reduced.

While I despise the Affordable Care Act, I would support a system like the more successful ones that have been implemented in Europe, with modest/limited universal care supplemented by private insurance, which could be purchased and sold across state lines (national underwriting).

OR, alternatively.... I really never understood why we couldn't just have created a "national public network" of public clinics where patients could get routine treatment upon payment of a flat "per-visit" fee. Couple that with a national network of public hospitals where patients can get those services only a hospital can provide, with payment of a flat "per admission" fee. If fees aren't paid, then the bill could be sent over to the IRS to add to the tax obligation (since they are going to be involved in the ACA, anyway).

The public hospitals could limit their services to non-discretionary surgery, emergency care and such, with the big-ticket or extraordinary items like transplants and fancy plastic surgery limited to the non-public hospitals, and private supplemental insurance covering those costs or fancier treatments that aren't on the public hospitals' "menu of services provided."

In other words, if we can have a national network of military bases and a national network of military hospitals, why couldn't we just expand the network of public health facilities so that anyone could (within a reasonable amount of travel) get to a public clinic, with at least one public hospital located in every state.

For those who live in remote areas, special subsidies could be provided either for public coverage of the costs of private care (on a fee schedule) and/or officially approved transportation reimbursement could be arranged, with the clinic providing a "voucher" or stamp verifying that the patient's residence (or hotel/place of temporary visitation) is "X" number of miles from the closest clinic.

That way, the government could control their own assets (clinics/hospitals) any way they see fit (since they love to meddle so much), and all the private clinics and hospitals could be subject to the most stringent regulators of all: private customers/patients and plaintiff's attorneys.

</end of poorly organized, unplanned and probably incoherent rant>
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It could be efficient for govt to operate public clinics and hospitals for the poor, but the odds of getting approved are not good.

It lets employers everywhere drop coverage and send employees to the public clinics. It puts private practice doctors and hospitals in competition with government. That will probably limit their income, and they will strongly oppose anything like that.

A govt health insurance program required for everyone is a far more attractive choice from a politics point of view.
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Yes there is some malpractice. More often it is unrealized expectations. And then add on for pain. These procedures can be painful. Sometimes they don't 'take'. This is art not science. Add in the law practices and is it any wonder the Dr. practice "defensive medicine". And medicine is a for profit business.

ol R
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Employers in the US have traditionally provided health insurance.

Nothing really traditional about it. Employers have been doing such for less than 100 years.

In fact, it was not until the wage controls of WW2 that employers, as a means to increase compensation but not wages, started offering health insurance.
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Employers have been doing such for less than 100 years.

Actually in this area railroads had hospitals for their employees that date back to the turn of the century. I would not be surprised to find similar benefits for employees in other heavy industries.

Yes, they tell us that health insurance was offered as a benefit for employees during World War II when wages were frozen, and there were few other perks.

My parents tell stories of when health insurance first became available for purchase. Others say that the medical community supported the idea because they realized that many who needed treatment could not afford to pay for it. So health insurance was originally a budgeting plan that essentially made better medical care affordable.
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