Reasoning about the USA Health Care System

The United States life expectancy of 78.4 years at birth, up from 75.2 years in 1990, ranks it 50th among 221 nations, and 27th out of the 34 industrialized OECD countries, down from 20th in 1990. Of 17 high-income countries studied by the National Institutes of Health in 2013, the United States had the highest or near-highest prevalence of infant mortality, heart and lung disease, sexually transmitted infections, adolescent pregnancies, injuries, homicides, and disability. Together, such issues place the U.S. at the bottom of the list for life expectancy. On average, a U.S. male can be expected to live almost four fewer years than those in the top-ranked country.

According to the World Health Organization (WHO), the United States spent more on health care per capita ($8,608), and more on health care as percentage of its GDP (17.9%), than any other nation in 2011. The Commonwealth Fund ranked the United States last in the quality of health care among similar countries, and notes U.S. care costs the most.

The U.S. Census Bureau reported that 49.9 million residents, 16.3% of the population, were uninsured in 2010 (up from 49.0 million residents, 16.1% of the population, in 2009). A 2004 Institute of Medicine (IOM) report said: "The United States is among the few industrialized nations in the world that does not guarantee access to health care for its population." A 2004 OECD report said: "With the exception of Mexico, Turkey, and the United States, all OECD countries had achieved universal or near-universal (at least 98.4% insured) coverage of their populations by 1990." A 2010 report observed that lack of health insurance causes roughly 48,000 unnecessary deaths every year in the United States. In 2007, 62.1% of filers for bankruptcies claimed high medical expenses. A 2013 study found that about 25% of all senior citizens declare bankruptcy due to medical expenses, and 43% are forced to mortgage or sell their primary residence.

... In the U.S., people spend almost 20% of the gross domestic product on health care, compared with about half that in most developed countries. Yet in every measurable way, the results our health care system produces are no better and often worse than the outcomes in those countries.

... We may be shocked at the $60 billion price tag for cleaning up after Hurricane Sandy. We spent almost that much last week on health care. ...

... America's largest city may be commonly thought of as the world's financial-services capital, but of New York's 18 largest private employers, eight are hospitals and four are banks. Employing all those people in the cause of curing the sick is, of course, not anything to be ashamed of. But the drag on our overall economy that comes with taxpayers, employers and consumers spending so much more than is spent in any other country for the same product is unsustainable. Health care is eating away at our economy and our treasury.

The health care industry seems to have the will and the means to keep it that way. According to the Center for Responsive Politics, the pharmaceutical and health-care-product industries, combined with organizations representing doctors, hospitals, nursing homes, health services and HMOs, have spent $5.36 billion since 1998 on lobbying in Washington. That dwarfs the $1.53 billion spent by the defense and aerospace industries and the $1.3 billion spent by oil and gas interests over the same period. That's right: the health-care-industrial complex spends more than three times what the military-industrial complex spends in Washington.

> What caused American medical prices to be so obscenely high?

There's been a ton of research on this, and there are at least five big drivers: Waste, Price Insensitivity, Technology, Market Pressures, and Regulation.

Something like 30% of our health spending is pure waste. Well, worse than pure waste because of the risk of negative outcomes (hospital-acquired infections, death, etc). This can be from all kinds of things, from outright fraud to doctors and systems simply covering their butts, to doctors agreeing to treatments that patients asked for so they don't lose their future business.

If you understand supply/demand models, I hope that you know a bit about price sensitivity. There is an assumption of a downward sloping demand for healthcare services with respect to price paid (higher cost -> less demand for it). The trouble is that the payor is not the same as the recipient of the service, and neither is the one who makes the recommendation. Here, the one that recommends the treatment is often the one who gets paid for doing things (the doc), the one who pays often just gets a bill for what has been done (the insurer), and the one who receives the service (the patient) just pays their copay - a cost that has little to do with the total price of the service.

A huge driver of costs is the "arms race" of the latest technology. This has all kinds of drivers that are worth diving into - like our current patent and approvals process ... The consequence is that doctors and health system spend a massive amount of money on new technology that patients demand that has little (if any) positive effect on outcomes.

In terms of market structure, there is massive fragmentation among providers. And they are the ones who have to buy supplies. Since there isn't one big purchaser of supplies (including meds, devices, durable medical supplies, etc) and there are just a few major players for specialized (and patented) supplies, the providers have little bargaining power to keep costs of supplies down. The higher costs from less market power get passed on to customers. Additionally, consumers - patients - don't have any real power, except through their insurers, to keep costs down. (But if there exists a patients' union, let me know!)

Finally, regulation. It costs a lot of money to comply with all of the regulations. This goes from staffing (doctor training is massively expensive and heavily regulated), to job designation (there is generally a very well-defined scope where an individual can practice), to required emergency care (see EMTALA) driving up the cost of bad debts, and even to requirements related to safety. These all cost a lot of money, and those costs all get factored in when the providers set their prices. With the general price insensitivity, and lack of customer power, these costs generally go straight through to increase the cost of care.

It's messy, but those are the top 5 IMO.

> How is hip replacement in Spain instead of USA
> so much cheaper there?

It's not exactly labor costs or profit margins, but it's primarily those two rolled into one.

The labor overhead of an American hospital is substantially higher. A single-payer health system costs significantly less administratively. The private insurance system takes a legion of specially-trained medical coding and billing specialists trying their level best to extract the highest negotiated prices from insurance companies, and the insurance companies respond by having departments literally devoted to finding excuses to refuse claims. Then the hospital will send the bill for the aggressively and expensively classified service to the patient first, because all they saw was "claim denied", and no one is about to admit wrongdoing or confusion by the whole cumbersome thing that's way worse than you think. This makes the patient unhappy, and the patient is a customer, and the US believes in customer service in a way you won't find anywhere else. Now you have the patient advocacy departments, both in the hospitals and the insurance companies. All of these people are expensive. None of them are minimum-wage laborers. None of them add actual value to your healthcare. They exist to extort or save money in a corporate arms race.

Also, in true American fashion, the business is business, and business is good. The executives of healthcare anything, whether it's hospitals, insurance companies, or healthcare-related manufacturers, they get paid orders of magnitude more than their European counterparts. In the US, no one says, "Wait, they're not the specially trained experts, they're just businessmen, why do they make so much more than doctors?" They say, "Of course managers make more than their employees, and the directors make more than managers, and the VPs make more than the directors, and the presidents make more than the VPs, and the C*Os make more than them. How else would we get people to do the job?"

Depending on who you ask, you could drop healthcare costs in the US by 10-40% just in labor reductions by switching to a single-payer system. (I think the honest reality is that, since we have a legion of medical coders at the ready and no one would let a good corporate weapon go to waste, so you'll see the fight move to hospitals v government, and the low end of that scale is correct.)

Then you have the costs. Ye gods, the costs. Here's where you get the profit margins.

Prescription drugs are a big one. I'm all for drug patenting, but drug companies level absolutely insane costs for drugs with no generics, and they'll go to great lengths to find new ways to patent the same drug. Just because they're the worst doesn't mean that they're the only ones. High-end medical equipment has the same patenting and cost issues. Then there's all the lab supplies and reagents, run-of-the-mill equipment, lubricants, tubes, and assorted sundries meant for hospitals. Those manufacturers, they all get paid well.

Then there's the approach. If you have chronic high cholesterol, an American doctor will prescribe you a statin and hand you a pamphlet on lifestyle changes you might consider making. A Spanish doctor will call you a fatty, put you on a diet and send you jogging for a few months, and maybe if that doesn't work you'll get a prescription.

Then there's you, the average American healthcare consumer. You have no idea what dollar amounts are being thrown around if you have an insurance with co-pay. You probably don't know that the anti-nausea medicine you're taking costs almost $100 a pill, or the Advair that only helps your asthma a little costs fifty times more than the albuterol that'll save your life in a pinch. You don't go price-shopping hospitals or refusing silly services that'll cost your insurance company hundreds of dollars. You go, get care, leave, and let the rest of that happen behind the scenes. There's no downward pressure on these prices, so they'll continue to inflate.

EDIT: I totally forgot about "preventative care", the newest fad in healthcare extortion. Outside the US, preventative care means a nice sit-down with a dietitian and a daily stroll. In the US, this $2500 test can make a disease cost $6000 to treat instead of $150,000! Great deal! So let's get fifteen million people to get this test every year to prevent two thousand cases for a net savings of negative thirty-seven billion dollars. In some cases (mammograms and colonoscopies are the most visible examples here, but not the only), this results in over-intervention. Things that would resolve themselves are instead treated aggressively.

Hi, Economist here (worked on healthcare costs for about 10 years starting in 2002): KINDA.

Single-payer IS better and cheaper. You present a pretty good summary, but you do get some things wrong. There is, OF COURSE, downward pressure on prices ... from the insurance companies paying those prices. "$100 a pill" is a meaningless (in most cases) "MSRP" number. It's what you might "pay" with no insurance assuming you actually paid your medical debt at 100% of the billed value. It isn't what insurance companies pay.

...

Also, while over-screening is absolutely a problem in the US (mammograms are ludicrously over-utilized for screening when they should likely be primarily a diagnostic tool), the stereotype of "let's eat right and exercise and see what happens" from Euro docs and "let's take this pill, get this scan and cut that f**ker out" from US docs is greatly exaggerated.

It sounds great, but the reality is that European citizens also take lots of drugs, ignore docs advise and have adverse outcomes. I worked a lot on cancer. You know who gets a lot of cancers per capita? France, Belgium, Denmark, Norway. All at a higher rate than the US (where, incidentally, because of the over-screening previously mentioned, there is likely some rate-inflation of "borderline" cancers that don't require much treatment.)

Some health outcomes are better in Europe or Canada, some aren't. The US is an amazingly demographically diverse place. Health outcomes for wealthy people in the US are great. Health outcomes for poor people in the US are borderline catastrophic. That's a problem, but the idea that it's all greed and profit motive causing the issue with the poor people is an empty correlation for the most part. Single-payer healthcare would help with poor people's health outcomes, but almost without question not as much as removing them from poverty would. Cheap good healthcare is great for health outcomes, not living life under crushing stress is far better.

As I say, it's complicated.

There's a popular myth that the uninsured - in Texas, that's 25 percent of us - can always get medical care through emergency rooms. ... The myth is based on a 1986 federal law called the Emergency Medical Treatment and Labor Act (EMTALA), which states that hospitals with emergency rooms have to accept and stabilize patients who are in labor or who have an acute medical condition that threatens life or limb. That word "stabilize" is key: Hospital ERs don't have to treat you. They just have to patch you up to the point where you're not actively dying. Also, hospitals charge for ER care, and usually send patients to collections when they cannot pay.

Medicare is a national, publicly-funded medical insurance, divided into three parts: A, B, and D. While technically available to purchase under the age of 65, the cost is unreasonable (if I recall, $400/mo per person, for each part), therefore, the vast majority of people with Medicare are aged 65+, who have paid into it through their taxes, for a minimum of 10 years. Part A is received for free, and covers Inpatient (ie; in-hospital) charges; stays, surgeries, etc. Part B is Outpatient, such as visiting your doctor for checkups. Part D is pharmacy coverage. There is also Part C, called Medigap, offered by commercial entities; for a premium, they cover things that Medicare does not. Medigap is designed for people with fixed incomes (ie, retirees), as it smooths out the cost of medical care; they pay a large premium each month, but little or nothing if they need medical services. Part A is offered for free, Part B costs $150/mo, per person, Part C varies depending on coverage, but ranged from $50-150/mo, and Part D is often offered as part of Part C plans, also from commercial entities.

Medicaid, on the other hand, is medical coverage for those without the resources to afford more. It is funded by the state, as opposed to by the nation, and its benefits will vary from state to state, but in general, it is only available for those in severely disadvantaged circumstances; disabled, poverty, orphaned children, etc. It has little, or often no, monthly premium, and offers extreme reductions in costs of medical bills, often 90-95% or more.



For more details on how health insurance works, it's a little complicated, which is, honestly, intentional, to confuse people. Health insurance is made up of several major components: The premium, or what you pay each month, the Deductible, or what you pay before the insurance company does, the Copayment, or what you pay, regardless of deductible, for a service, the Coinsurance, or what percentage of the service the insurance company pays, and the Out Of Pocket Maximum, or how much you will pay, in a worst-case scenario, each year. Also note that insurance companies negotiate with the doctor, and lower the costs of services.

The easiest ways to discuss these is to look at various types. For this example, I'll use a High Deductible plan, a High Premium plan, Medicare, and Medicaid, to lay out the examples.

A High deductible plan might have a premium of $100/mo, a Deductible of $5000, a Copay of $20, a Coinsurance of 85%, and an OOP Max of $10,000

A High Premium plan might have a premium of $250/mo, a Deductible of $1500, a Copay of $10, a Coinsurance of 90%, and a OOP Max of $3000

Medicare (Part B) has a premium of $150/mo, a Deductible of $150, a Copayment of $0, and a Coinsurance of 80%, with no OOP Max.

Medicaid might have a premium of $0, a Deductible of $0, a Copayment of $2, a Coinsurance of 95%, and no OOP Max.

Finally, you have no insurance. It's free, but under the ACA, if you choose to not have any insurance, you pay a fine of several hundred dollars. I don't know what it is offhand.



So, let's say you need to visit a doctor, for a regular checkup visit. The doctor charges $150 for this services.

Under the High Deductible plan, the doctor bills the $150. The insurance then negotiates it down to $110, cutting that $40 off the top. You pay the Copay in the office, that day, of $20. The insurance determines you haven't met your deductible, so they remove the remaining $90 from your deductible, leaving $4,910 for the year. You then receive a bill for the remaining $90.

Under the High Premium plan, the doctor bills the $150. The insurance then negotiates it down to $100, cutting that $50 off the top. You pay the Copay in the office, that day, of $10. The insurance determines you haven't met your deductible, so they remove the remaining $90 from your deductible, leaving $1,910 for the year. You then receive a bill for the remaining $90.

Under Medicare, the doctor bills the $150. Medicare negotiates it down to $75, cutting it in half. You do not have a copay. Medicare then determines you have a $150 deductible, and removes the $75 from that, leaving $75 for the year. You then receive a bill for the remaining $75.

Under Medicaid, the doctor bills the $150. Medicaid negotiates it down to $35, reducing it by $115. You pay a $2 copay that day. Medicaid does not have a deductible, so they pay 90% of the remaining $33, or $30. You receive a bill for $3 more.

You have no insurance. You pay $150.



Two months later, you go in for a series of tests, x-rays, and eventually outpatient surgery. This is expensive, but does not require hospitalization. The doctor charges $4000 for these services.

Under the High Deductible plan, the doctor bills the $4000. The insurance then negotiates it down to $3300, cutting that $700 off the top. You pay the Copay in the office, that day, of $20. The insurance determines you haven't met your deductible, so they remove the remaining $3280 from your deductible, leaving $1630 for the year. You then receive a bill for the remaining $3280.

Under the High Premium plan, the doctor bills the $4000. The insurance then negotiates it down to $3000, cutting that $1000 off the top. You pay the Copay in the office, that day, of $10. The insurance determines you have now met your deductible, so they remove the remaining $1,910 from your deductible, leaving $0 for the year. They then pay 90% of what remains, or $981. You then receive a bill for the remaining $2019, which is the $1910 from your deductible, and $109 left over from the coinsurance.

Under Medicare, the doctor bills the $4000. Medicare negotiates it down to $2700, reducing it by $1300. You do not have a copay. Medicare then determines you have met the deductible, removing $75 to pay for it. They then pay 80% of the remaining $1225, or $980. You then receive a bill for $320, which is the $75 deductible, plus the 20% of $245.

Under Medicaid, the doctor bills the $4000. Medicaid negotiates it down to $2000, reducing it by $2000. You pay a $2 copay that day. Medicaid does not have a deductible, so they pay 90% of the remaining $1998, or $1798.20. You receive a bill for $199.80 more.

With no insurance, you pay the $4000.



Several months later, you have a major surgery. It requires three weeks in the hospital, and is very expensive, costing $100,000.

Under the High Deductible plan, the doctor bills the $100,000. The insurance then negotiates it down to $70,000, cutting that $30,000 off the top. You pay the Copay in the office, that day, of $20. The insurance determines you haven't met your deductible, so they remove the remaining $1630 from your deductible, leaving $0 for the year. They then pay at 85% of the remaining $68,350, or $58,097.50. You then receive a bill for only $6,630, which is $10,252.50 plus $1630... but you met your Out of Pocket Maximum of $10,000 for the year, so they put a hard cap on it, and paid the remaining $5,252.50 at 100%.

Under the High Premium plan, the doctor bills the $100,000. The insurance then negotiates it down to $80,000, cutting that $20,000 off the top. You pay the Copay in the office, that day, of $10. The insurance determines you've met your deductible, so they then pay at 90% of the remaining $79,990, or $71,991. You then receive a bill for only $871, since you've now hit your $3000 Out of Pocket Maximum. Your insurance covers everything remaining, which would have been over $7000.

Under Medicare, the doctor bills $100,000. Medicare negotiates it down to $72,000, cutting off $28,000. It then pays 80%, since you have no copay, and met your deductible, or $57,600. You receive a bill for $14,400. (As a side note, I did not work in Hospital billing, so this may be inaccurate for Part A, but it's a good example nonetheless. I believe Part A and Part B have separate deductibles, but I'm nearing the post limit).

Under Medicaid, the doctor bills $100,000. Medicaid reduces it to $45,000, cutting off $55,000. They pay 95% of it, or $42,750. You receive a bill for $2,250, and likely have to declare bankruptcy.

Under no insurance, you receive a bill for $100,000, and declare medical bankruptcy.

As a side note, if you have Medicare Part C, and a strong one, you likely would not receive a bill, at all, for any of the Medicare portions.



Total costs of premium + costs:

High Deductible: $11,200

High Premium: $6,000

Medicare: $16,595

Medicaid: $2454.80

No insurance: $104,150 + ACA fine

[Some of my numbers may be out of date, I'm writing all of this from memory.]

The US does not have a healthcare system. It has several. Medicare is single-payer option with overwhelmingly private provision and some alternative administrative choices with a thick skim of secondary overlays of private health insurance. The Indian Health Service is full Beveridge. Kaiser is a single private system with nearly full vertical integration. Tricare is a social insurance model with limited private provision. Employer-based healthcare is privately funded (with a generous tax break on said provision), privately administered (subject to millions of pages of regulation), and privately provisioned (with minor exceptions for state-funded hospitals and the like). Then we have health sharing which are explicitly not health insurance, but involve "voluntary" assumption of costs by members, often linked by religious belief.

Then you have the growing cash-healthcare option where providers take all comers, but only those who can put cash on the barrelhead because the paperwork is too expensive. And of all the ways healthcare is administered in this country, this and the VA are the only ones that do not run the full gamut of provision (at least not yet).

I have worked for most of these. All of them are larger systems than multiple small European countries. All of them are wildly more expensive than similar mechanisms of provision overseas. All of them suffer from intrusive, expensive meddling by politicians and bureaucrats that result in active degrading of patient care in my experience.

The VA is the second-largest cabinet agency, and the nation's largest health care and benefits provider, with an overall fiscal 2015 budget of $165 billion (greater than the State Department, USAID, and entire intelligence community combined), including $60 billion for health care. The VA employs more than 320,000 personnel to run 151 major medical centers, 820 outpatient clinics, 300 storefront "Vet Centers", more than 50 regional benefits offices, and scores of other facilities. This massive system provides health care to roughly 9 million enrolled veterans, including 6 million who seek care on a regular basis.

The underlying problem is the soaring costs of health care - as evidenced by soaring premiums, co-payments, and deductibles that all of us are bearing - combined with the aging of the boomer generation.

The solution isn't to reduce Medicare benefits. It's for the nation to contain overall healthcare costs and get more for its healthcare dollars.

We're already spending nearly 18 percent of our entire economy on health care, compared to an average of 9.6 percent in all other rich countries.

Yet we're no healthier than their citizens are. In fact, our life expectancy at birth (78.2 years) is shorter than theirs (averaging 79.5 years), and our infant mortality (6.5 deaths per 1000 live births) is higher (theirs is 4.4).

Why? Doctors and hospitals in the U.S. have every incentive to spend on unnecessary tests, drugs, and procedures.

For example, almost 95 percent of cases of lower back pain are best relieved by physical therapy. But American doctors and hospitals routinely do expensive MRI's, and then refer patients to orthopedic surgeons who often do even more costly surgery. There's not much money in physical therapy.

Another example: American doctors typically hospitalize people whose diabetes, asthma, or heart conditions act up. Twenty percent of these people are hospitalized again within a month. In other rich nations nurses make home visits to ensure that people with such problems are taking their medications. Nurses don't make home visits to Americans with acute conditions because hospitals aren't paid for such visits.

An estimated 30 percent of all healthcare spending in the United States is pure waste, according to the Institute of Medicine.

We keep patient records on computers that can't share data, requiring that they be continuously rewritten on pieces of paper and then reentered on different computers, resulting in costly errors.

And our balkanized healthcare system spends huge sums collecting money from different pieces of itself: Doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policy holders.

A major occupational category at most hospitals is "billing clerk". A third of nursing hours are devoted to documenting what's happened so insurers have proof.

Cutting or limiting Medicare and Medicaid costs, as entitlement reformers want to do, won't reform any of this. It would just result in less care.

In fact, we'd do better to open Medicare to everyone. Medicare's administrative costs are in the range of 3 percent.

That's well below the 5 to 10 percent costs borne by large companies that self-insure. It's even further below the administrative costs of companies in the small-group market (amounting to 25 to 27 percent of premiums). And it's way, way lower than the administrative costs of individual insurance (40 percent). It's even far below the 11 percent costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.

Healthcare costs would be further contained if Medicare and Medicaid could use their huge bargaining leverage over healthcare providers to shift away from a "fee-for-the-most-costly-service" system to a system focused on achieving healthy outcomes.

Medicare isn't the problem. It may be the solution.