Maybe Social Security Isn't the Issue

After sharing my thoughts on Wednesday about how I think we need to fix Social Security, it turns out that maybe SS isn't the issue we need to address. Instead, maybe it's healthcare (what a shocker, huh?) A summary from CNN Money:

Social Security is actually a relatively small and fixable piece of the entitlement puzzle. Medicare for the old and Medicaid for the poor are the programs that really threaten to swallow up the budget.

The federal deficit, not counting interest payments, could eat up 9% of GDP by 2050 if business continues as usual. According to Brookings Institution economist Henry Aaron, the two big federal health programs account for nearly all of the gap.

The main problem is not the demographic bulge of baby boomers, says Aaron. It's that health-care costs overall, for private payers as well as in Medicare, are growing about 2.5 percentage points faster than the economy every year. New drugs, procedures and technologies keep upping the ante, even when we aren't sure if they work better than what came before.

If we could get a grip on runaway cost growth throughout the system - not just for old folks - we'd solve much of the budget problem. And we could even afford to cover everybody. As a practical matter, Aaron argues, the two reforms must go together.

The piece goes on to say that both Obama and McCain don't really have a workable solution at this point. I wonder if we'll ever get a workable solution. After all, it's a huge issue with trillions of dollars at stake and many special interests involved. To get a good solution, we'd need our politicians to make tough choices in the best interest of the country (not their own best interests) -- something that's virtually impossible to do. If they ever do address the issue (which will likely occur only when it gets so bad that there's no other choice), we're likely to end up with an everybody-gets-his-own-special-interest-into-the-program sort of plan that makes the cure worse than the disease.

As you can tell, I'm not optimistic.

Looks like I'm going to be right about healthcare and retirement.

Comments

["Mo" Money]

No seems to know exactly why health care and higher education costs grow so much more than inflation. Surely someone knows the cause of these costs being so high. And then we could figure out a cure.

[Mr. ToughMoneyLove]

Now you can understand why some fiscally conservative boomers like me are conflicted by this issue. On the one hand we are philosophically opposed to a government funded single payer system. On the other hand, it would surely expedite our retirement.

[Matt H]

"Mo" Money:

Part of the reason health care costs so much is that consumers aren't faced with the costs of their choices (to the extent they have any) because of medicare, medicaid, and employer-selected and purchased health plans. So part of the solution is to end the differential tax treatment of employer-provided health insurance. That will lead more people to choose high-deductible health insurance and only use it to protect themselves form catastrophic losses.

Here's an example of how it would affect me: I'm lucky enough to live in a somewhat urban area with 3-4 hospitals within reasonable travel time if I need to go to the ER. Yet, with a standard ER visit copay of $100 through my insurance, I've never had any reason to research which ER tends to offer the lowest-cost care. So instead, I choose based on wait times and travel times. Now, most of us seldom visit the ER, but the same principle applies to specialists and even general practitioners.

Pharmaceuticals could work the same way. I'd like to see pharmaceutical coverage as part of that high-deductible insurance, that only comes into play for very high-cost therapies for chronic conditions. Just imagine: you get a prescription from your doctor, then instead of running to the closest pharmacy, you call every pharmacy in town to see who has the lowest price for the drug you've been prescribed.

As long as consumers are insulated from the costs of medical care, the costs will continue to rise. If the prices are held in check by political processes (this is how government-run health care is supposed to work) then the costs will simply be borne by consumers in other ways, such as wait times.

College prices are so high because it's worth so much when you look at the difference it makes in your lifetime income. Government programs to make higher education more "affordable" in reality only inject more money into the system, inflating tuition prices further. All that extra money is just funneled into colleges and universities.

[LotharBot]

Matt H is exactly right, though I'd phrase it differently.

The main problem with health care right now is that there's no FEEDBACK in the system. Consumers pay their $10 copay, go to any hospital in their area, and a magical outside force (insurance) pays the rest. So there's no incentive for hospitals to compete on costs, and no incentive for consumers to look for lower costs at the hospitals.

This is made even worse by "universal health insurance". As Matt said, government programs in reality only inject more money into the system, inflating prices further. As long as there's no feedback, no incentive, no reason for consumers to shop around or for hospitals to compete on prices, it's going to get more expensive.

[MasterPo]

Matt - If you have to visit an ER cost is the LAST thing most people are thinking about. If you have a medical emergency you're not going to start calling around for price quotes. Besides, how can a doctor quote a price for healing you? We're talking medicine not plumbing.

The reason costs are sooo high is that the way insurance works now is NOT insurane but group payment.

Imagine if your auto insurance had to work the same way health insurance works now (and people alredy complain about high auto insurance rates!).

By the same principles your auto insurance should pay for your oil changes and tune ups (preventive maintenance). Your auto insurance should buy you a new set of breaks every 20,000 miles and new tires every 40,000. And don't forget new wiper blades and shocks!

Now imagine how much MORE you'd be paying in insurance costs if auto insurance had to pay for all these things as opposed to real unforseen events like accidents, theft and fire.

That's what insurance is for: Protection against catastrophic and unforseen events, not the common events and maintenance of daily life.

[mysticaltyger]

I agree with comments from both MasterPo and MattH.

We need high deductible insurance. Consumers should not be herded into employer or government sponsored plans where there are no real choices.

If the government wants to provide cash subsidies to consumers for health care for consumers to shop for health care, that's great.

But the insurance system as it is is absolutely horrible, and it leads to high costs and lousy care. And simply having government sponsored insurance will not fix those underlying problems.

[a]

My musings on health care reform.

Separation of health care from the employer or the government:
Whether we use the current system or some socialized medicine system, the price of health care is masked so that the patient has no idea what they are actually paying. Let the patient pay the full cost of health care and they'll start demanding that prices drop.

Insurance vs Maintenance:
I really like the idea of a system where you separate out health insurance and health maintenance. Trauma, ER visits, and other outrageously expensive conditions could fall under insurance. Everything else under health maintenance. This would force people to think about prices for those things that aren't medical emergencies. This would also allow otherwise healthy people to have lower cost insurance that covers emergencies and catastrophes rather than every medical procedure they may conceivably have done. It would even indirectly encourage people to be healthier so they can spend less on maintenance.

It encourages providers to come up with new business models for providing health maintenance. You could have a la cart where you just buy what you need at the time or you could have some kind of annual payment system like we have now that covers everything. Or totally different business models could be devised.

Everyone does not need the biggest and the best:
Rising health care costs occur in part because everyone wants the best (think visits to highly trained specialists and proprietary drugs). But the fact is many health care problems can be solved on the cheap (think nurse practitioner visit and some generic drugs). Under the current system there is no incentive to build a faster cheaper clinic.

Litigation, red tape, and a sue happy society:
My own reading into health care says this isn't a huge cost, but its still a cost. So how about imposing realistic litigation guidelines. Do obstetricians really need an 18 year statute of limitations? Should drug companies be responsible for every possible adverse events, even the ones not revealed by clinical trials?

Government involvement:
The government should regulate health care, not administer it. The government could also give out health care or insurance subsidies to people.

[MrAtoZ]

I agree with the general sentiment that the health care is somewhat unique in that cost considerations are not something most consumers have in mind, unless they are paying out of pocket. Witness the growth in medical tourism, which FMF has blogged about: it's largely due to the fact that third-world countries offer first-world amenities and service at below first-world prices. But many of the services are not emergency or life-savings related; they're cosmetic or convenenience-oriented.
Another factor is certainly the arms race to develop new drugs that cost more than current drugs that do much the same thing. As the evidence piles up that many older products, such as mood stabilizers, hypertension meds and pain killers, are more cost-effective than new generations of drugs, perhaps that will be one way to keep new costs out of the system. That implies consumers will have, well, a consumer mindset of rationally seeking out the most cost-effective treatments....which if you see all the products that tell you to "ask your Dr. about whether Xfactor is right for you", you have to be circumspect about how much rationality can be expected.

[Lord]

This is a problem, not just for government but for all of us. Business pays large sums to cover their employees and employees are having to cover more or go without. The problem is there is no market in healthcare. Information is non-existent or unavailable. The system is a cost plus system where costs are made up. Insurance destroys incentives to limit costs. Educating consumers to the standards of doctors simply isn't possible.

What works to control costs is widely known throughout the industrial world and it is single payer fee for service. That generally means a government plan and a private option. The government plan has cost controls that limit spending but greatly increase cost efficiency since profits are made through cost reductions. The private option serves to cover those who wish to spend more and can for convenience, comfort, and satisfaction. Politicians may talk of govt bureaucrats but it is really no different than insurance bureaucrats but typically less bureaucratic when there is only one to deal with and they typically deal with providers rather than the public. It does require competent administration, something people may not believe is possible these days, but as long as that is what they are measured and rewarded for, is done around the world today. Course, some people think Americans are too dumb for that.

[mysticaltyger]

Lord:

I agree with your assessment of the problem. But the idea that a government bureaucracy can control costs is laughable to me. Let us try to approximate a true free market and let government subsidize where the market isn't working.

For all those who are interested in market driven health care reform, I recommend a book by Regina Herzlinger called "Who Killed Health care?"

[Lord]

American spends twice what any other developed country spends on health care. Yes, cost control works. Americans are just too dumb to believe it.

[kitty]

"If you have a medical emergency you're not going to start calling around for price quotes. Besides, how can a doctor quote a price for healing you? We're talking medicine not plumbing."
I'd like to second that. If you have time to start looking for the cheapest ER, you have no business going to ER at all. You have to call your regular doctor and schedule an appointment. Overuse of ERs contributes to high costs. Every time one goes to the ER, the ER doctors order tests to rule out things. Because of legal fears they often order tests you don't really need e.g. to rule out 1/10000 chance of something just so you don't sue them. Even if they wouldn't have ever ordered the same tests on their relatives.

"The reason costs are sooo high is that the way insurance works now is NOT insurane but group payment."
This is way too simplistic. The advantage of group insurance is sharing risks. Without groups people with pre-existing conditions, older people, even pregnant women may have difficulty buying insurance.

Yes, people should be exposed to costs, but you can do it without breaking the current system. High deductible plans as well as plans that require co-insurance of X% can be offered through group plans as well. My company stopped providing most HMOs a few years ago. Now you can get PPOs with 20% in-network, 30% out-of-network co-insurance and deductible. The deductible isn't as high as with high-deductible/HSA plan (which is also offered), but it is not insignificant either. Additionally, 30% is from negotiated prices, so if you go to a more expensive doctor, you have to also make up the difference between real and negotiated price.

This is another thing. People here seem to completely ignore the bargaining power that group insurance has with providers. Have you ever seen "Explanation of Benefits" statement? Did you see the difference between asking price and negotiated price? Group insurance does negotiate. Without them, the initial effect will be prices going up.

"Imagine if your auto insurance had to work the same way health insurance works now (and people alredy complain about high auto insurance rates!)."
Do you really want to go there? Would you like your health insurance premiums to go up so much you can't afford them the moment you are diagnosed with cancer?
Regarding maintenance - do you have any idea how much some standard care costs once you are over 50? Know a cost of colonoscopy for example? Now, mammograms are cheap, but after 10 years, the chance of having at least one false positive is almost 50%. False positives result in additional tests which are a whole lot more expensive. Add to it cost of blood pressure medication, statins, etc. and the "maintenance" cost will be high. What if you don't have cancer but get a "cancer scare"? A cat scan cost can be in the thousands. Granted, some cat scans aren't necessary and having people pay for them will reduce costs, but what about necessary cat scans for someone with a real chance of having a life-threatening disease? If you end up not having the disease you don't qualify for catastrophic care, but you still have to cover the cost of the test. Sure for some procedures the costs may come down, but since the clinic purchased the equipment, they cannot just reduce the cost and stay afloat.

I think more people having plans with co-insurance rather than co-payment is good. Also, Do Not Resuscitate should be a default when there is no living will. Use of a ER without good reason should be penalized except when there is a reasonable suspicion of emergency - we aren't doctors we cannot say if chest pain isn't a heart attack, but we sure as hell know that a common cold isn't an emergency. But why can't this happen with current employer-based coverage?

[StLPastor]

The fact that the entire medical system is set up not to reveal costs up front is also a problem-there is no other industry where it is conventional for there to be no talk of how much something will cost until after the transaction has already taken place. Imagine if costs for various procedures were publicly displayed in waiting rooms/emergency rooms/online.

Also, it does seem that the fact that countries with public health care systems have better outcomes at a lower price does work against any philosophical objections we might have to a single payer system.

Finally, since catastrophic health problems plus underinsurance are one of the major causes of bankruptcy in this country, there are solid financial reasons to insist upon universal insurance and subsidize it as necessary, just to keep the costs down for society as a whole.