By Uwe E. Reinhardt
The New York Times, February 3, 2012
In a paper, “Divide et Impera: Protecting the Growth of Health Care Incomes (Costs),” published this month in the British journal Health Economics, I summarize themes touched on here and there in several earlier posts on this blog.
My argument in the paper is that what is often called overuse of health care by what are often described as excessively insured Americans — especially their use of high-cost, high-tech procedures — is at best a partial explanation for the high cost of American health care.
Yet cost-containment initiatives like high deductibles and co-insurance have taken use of health care as their chief target. These efforts will be only partly successful in controlling national health spending.
Equally important contributors to our high health spending, and probably more so, have been two other factors.
The first is the much higher administrative overhead costs loaded onto the American health system. David Cutler and Dan Ly, both of Harvard University, illuminate this proposition in their recent paper, “The (Paper) Work of Medicine: Understanding International Medical Costs,” in which they compare health spending in Canada and the United States.
Earlier, in a 2003 paper, “Costs of Health Care Administration in the United States and Canada,” Dr. Steffie Woolhandler, Terry Campbell and Dr. David Himmelstein estimated that in 1999 total administrative costs of health insurers and all other parties in health care, save patients, accounted for 31 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada.
A second major factor accounting for high health spending per capita in the United States is the significantly higher prices Americans pay for virtually all health care services and products.
My thesis on this issue — expressed in the title of my paper — is that these much higher prices are the product of a deliberate strategy, hashed out in our political bazaars between the supply side of health care and state and federal legislators, always to keep the payment side of our health system fragmented and relatively weak vis à vis the supply side of health care.
http://economix.blogs.nytimes.com/2012/02/03/health-care-payers-push-back-against-costs/
Comments (published on the NYT blog):
Don McCanne
San Juan Capistrano, CA
In his paper, “Divide et Impera,” Professor Reinhardt discusses three approaches to controlling health spending: single payer, all-payer, and rationing by prices.
The last, of course, is what we now have and is rejected by most of us who wish to see a more humane method of financing care. It is still supported by those who believe the health care consumer should use their own funds to shop for care, even though these supporters are reluctant to call it what is is – rationing by ability to pay.
In his article, single payer is dismissed based on lack of political feasibility, a view widely held in the United States.
In contrast, Dr, Reinhardt discusses an all-payer system in which prices are standardized and budgeted by associations – a great improvement over our current system (which Dr. Reinhardt discussed in a previous blog). However, he states, “Admittedly, a transition from the current to an all-payer system for all providers of health care in all states would be challenging, both analytically and politically.”
Politically challenging. Isn’t that like questioning political feasibility?
Is the political hurdle for an equitable and efficient single payer system really that much greater than the hurdle for a less efficient, less equitable and more fragmented all-payer system?
If we’re going to have to break down political barriers, why don’t we go for the best?
Nathan Punwani
Cambridge, MA
If we’re really interested in cost control, do we really need a public option? What about an all-payer system? What are the advantages and disadvantages of an all-payer system relative to a single-payer system (besides private insurers don’t like single payer)?
Nathan Punwani
MPH Candidate – Harvard School of Public Health
Uwe Reinhardt
Princeton, NJ
The advantages of a single-payer system are:
1. They are simple and easily understood by all concerned.
2. They foster egalitarian health care delivery, because they usually are financed on the ability-to-pay principle. and providers are paid the same fee regardless of the socio-economic status of the patient.
3. They are ideal platforms for the smart application of electronic health information systems.
4. They have relatively low administrative overhead costs.
5. They give the insurer (the single-payer) a financial incentive to invest in preventive care and behavioral health care, because patients have automatic life cycle insurance under these systems so that the insurer reaps the savings in acute care treatment costs over the longer run.
6. Cost control is easy with these systems.
The disadvantages are:
1. Prospective insured do not have a choice among different insurers and different benefit packages.
2. Government, which usually operates these systems, may underfund them relative to what the people actually want and would be willing to pay for, although one should think that in a properly functioning democracy that could not go on for very long.
3. Mistakes at the center in coverage or payment matters quickly diffuse to all corners of the system.
4. Some people, notably Americans, just oppose all forms of centralized power, however efficient it may be.
Don McCanne
San Juan Capistrano, CA
Some of the other effective tools of the single payer model, as supported by Physicians for a National Health Program, include the following:
* Administratively efficient global budgeting of hospitals, as with police and fire departments
* Negotiation of fair rates with physicians
* Bulk purchasing of pharmaceuticals, like the VA
* Reducing diversion of patient care funds by eliminating for-profit corporations and their passive investors
* Planning and separate budgeting of capital improvements to prevent wasteful excess capacity, while ensuring adequate capacity in under-served areas
* Replacing choice of restrictive, wasteful, expensive private insurers with the choice we want – choice of our health care professionals and institutions
The greatest problem with single payer systems is that conservative governments strive to privatize and underfund the programs, such as the current efforts in England and Canada, and also here with the conservative attack on our Medicare program. Such anti-egalitarian approaches tend to shift burdensome costs to patients who are already suffering from ill health.
The efficient and equitable policies of the single payer model which would provide us with much greater value in our health care purchasing are precisely what we need. It’s the politics that we need to change, something that we should be able to do with a “properly functioning democracy.”
