
What makes US health care so expensive? Hard numbers, no easy answer.  - yummyfajitas
http://theincidentaleconomist.com/what-makes-the-us-health-care-system-so-expensive-introduction/
======
SamAtt
It's an interesting read and worth bookmarking if you can't get through right
now (the page was going in and out as I read it).

It's kind of depressing though in that his point boils down to neither side's
solution being all that effective at solving the problem. Moreover his meta
point seems to be that it's too complicated a problem for politicians to solve
based on their need to boil things down to a sound bite solution.

~~~
roc
Politicians don't solve based on the sound bytes. They win power with sound
bites. There's no shortage of evidence of sound bites being blissfully
ignored, by politicians of any stripe, moments after an election victory.

Politicians 'solve' based on lobbying efforts. And _that's_ why they can't fix
anything. Lobbying favors the entrenched and they like things nice and
wasteful and anti-competitive.

~~~
pyre
Politicians _love_ competition. If there is a bidding war between rival
lobbyists, that's a good thing... for the politician.

~~~
roc
Firstly, I was referring to the resulting citizen-facing services being anti-
competitive.

Secondly, I disagree. A small handful of would-be suitors is preferable. But a
large field would only be possible if the firms were each smaller, which means
they have less money for lobbying efforts in general. Which simultaneously
means less graft up-front _and_ a less-lucrative position as a lobbyist when
your term is up.

------
nerme
The biggest point that he is making is that there are a LOT of areas where the
US is overspending on health care. Which, if the effectiveness of this health
care was in line with the increase spending, it would be alright.
Unfortunately, it isn't, so there is a lot of waste.

We are spending money on the wrong things and it is a systematic and cultural
problem.

Anecdotally, I tend to see a lot of people in the US go to the doctor "just to
play it safe". X-rays for a sore knee, antibiotics used for a mild sinus
infection, blood work done because they're not sleeping well at night... we
spend a lot of money with the idea in our heads that the medical industry can
and will cure all of our ailments.

------
jan_g
I may be completely off the mark, but I think that the cost of research may be
hidden somewhere in all those huge numbers . US is making breakthroughs all
the time in drugs, medical machinery/equipment, IT in medicine, disease
discovery & prevention, etc. For example, HPV vaccine came from the US (I know
about this, because my daughter will be vaccinated when she reaches teenage
period).

Much of the rest of the world is piggybacking on US. That's my opinion. I am
from Europe.

~~~
SamAtt
I don't think it's hidden at all. He says in the Drugs section...

"The problem is that our drugs, on the whole, cost about 50% more. For name
brand pharmaceuticals, we pay about 77% more. Why? Some will say that it’s
because we’re wealthier and need to subsidize for the rest of the world. But
even if we paid more based on our relative wealth, it would come to about a
30% premium, not the 77% we do pay."

So the problem is obvious. The issue is how to fix it. We in the U.S. can
either enforce our own price controls which will break the system or we can
force U.S. companies to charge more to other countries and take the chance of
denying medicine to sick people because foreign governments won't accept the
higher prices.

Not an attractive choice no matter how you slice it.

~~~
MoreTuple
Or we can tell companies to charge amicably across the board else they risk
losing patents on drugs sold to Americans at grossly inflated rates. A drug
patent should give a company the right to sell/license the drug, not the right
to gouge people with it.

Clearly this lacks details, but the concept would work after the first few
nullified patents.

~~~
anamax
Or we can tell companies to charge amicably across the board else they risk
losing patents on drugs sold to Americans at grossly inflated rates. A drug
patent should give a company the right to sell/license the drug, not the right
to gouge people with it.

> Clearly this lacks details, but the concept would work after the first few
> nullified patents.

Of course it will "work", but are you sure that you'll be happy with the
result?

Some other countries have said exactly that, the result being that folks in
those countries are paying production costs but not R&D costs. If the drug
companies can't recover R&D costs in the US, how do you think that the R&D
costs will be paid?

If they don't think that they'll be able to recover R&D costs, what do you
think that they'll do?

If you think that they can charge less and recover their costs, why don't you
do so and drive them out of biz?

------
WalterBright
This article [http://www.theatlantic.com/magazine/archive/2009/09/how-
amer...](http://www.theatlantic.com/magazine/archive/2009/09/how-american-
health-care-killed-my-father/7617/) lays out the reasons in a convincing
manner. Very illuminating is the article pointing out that Lasik eye surgery
is decreasing in cost, and why, while other health care costs are soaring.

~~~
zach
WOW. Thanks for sharing that article. I'm sorry I missed it when it came out.
An article full of novel insights and heartfelt interest in the subject. And I
used to work for the company the author headed ten years ago!

Highly recommended, and I'd point out that it's highly relevant the the meme
du jour, which is that if you're not paying, you don't have the privileges
associated with being a customer. Employer-purchased health insurance and
bureaucratic health care programs have robbed patients of their power to be
customers, and it's something I was never clued into before.

------
narrator
There are many different aspects as to why health care is so expensive in the
US. I never really hear about doctor's salaries being mentioned as a cause. I
was browsing glassdoor.com a few nights ago. The professions making more than
300k a year as salaried employees were almost all medical specialists. I
really doubt any other country pays their doctors that well.

~~~
sachinag
_sigh_

The articles go into this - yes, the salaries are higher than expected, but
they're a relatively small part of the problem. It's that we consume more care
than any other country, and by a lot. We have to find a way to reduce demand.
_That's_ the problem.

~~~
old-gregg
_sigh_

No it's not. The salaries are in fact the only reason we have this problem, so
_that's_ the key to the solution. And no, we don't consume "more care" than
any other country (Japanese do way more).

~~~
matwood
There is no single reason, but [edit] _doctors_ salaries are not even a large
part of the costs even though they do factor in. Much larger drivers are over
use of insurance, and the cost of malpractice insurance for doctors.

By overuse of insurance I mean people going to the doctor every time they have
a cough and expecting it to be covered and having every routine visit covered.
In comparison, I have insurance on my car, but I don't expect it to pay for
oil changes. Many people in this country have their health insurance
completely backwards. They are over covered for things they should be paying
for out of pocket and severely under covered for what insurance should really
be there for, a serious, expensive and long term medical issue.

When you think about a simple doctors visit and then the paperwork and
manpower involved to push it through insurance it's no wonder the costs are
through the roof. Many doctors have recognized this and now offer nicely
discounted rates for people who simply pay cash at the time of service.

~~~
kscaldef
I don't know many people who go to the doctor every time they have a cough.
Most people seem to just tough it out; even dragging themselves into work
sniffling and sneezing, and potentially infecting everyone else in the office.

I also know lots of people with chronic low-level pain or other ailments who
don't get any medical attention for a variety of reasons (too much hassle, too
time consuming, can't get time off work, don't expect the doctor to actually
do anything, can't afford the co-pay, etc).

Americans don't actually see their doctors more often than citizens of other
countries. In fact, exactly the opposite is true. See
[http://blogs.ngm.com/blog_central/2009/12/the-cost-of-
care.h...](http://blogs.ngm.com/blog_central/2009/12/the-cost-of-care.html)

------
russell
Here's my problem with it: 60+% (by eyeball) of the costs are not categorized,
so there is no real guidance for reform.

Outpatient care is quite high, but part of that is because hospital visits are
shorter in the US and many in-hospital procedures are actually done in
clinics. A lot of people, especially the poor, go to emergency rooms for
routine stuff, because they can get free treatment. But I think the US is way
overbuilt in expensive diagnostic equipment. I live in a county of 250K people
and there are at least 5 imaging centers that I know of.

Edit: San Luis Obispo is a rural county. The largest city is only about 50K
people. This kind of over building is not limited to huge metropolitan areas.

~~~
ahi
I think capital expenditures is the start of why costs are so high. It is
difficult to find a hospital these days that isn't currently renovating or
expanding. Hospitals can spend however much they want because they have no
pressure on their prices. The insurers don't care how much they are paying so
long as it's comparable to other insurers. They can just pass along the
increases to employers/individuals who are required to buy. The only pressure
healthcare providers have comes from Medicare and Medicaid and whatever they
lose there they can just shift to the private insurers.

~~~
rbranson
Ah yes, our "free market" health care system.

~~~
russell
Rather our oligarchical market system, where regulation is for the benefit of
the regulated not the consumer. Bring back Teddy Roosevelt and the Bull Moose
Party.

------
lionhearted
I did a lot of looking into this. Here's some points pasted in from an old
comment of mine that was popular -

\--

Some reasons American medicine is very expensive:

1\. Health insurance, but not treatment, is fully tax deductible. So if you
buy your own penicillin, it's with after tax money, but if your insurance
company buys it, it's pre-tax money. That's one of the reasons that health
insurance is so widespred in America even for routine medicine like
antibiotics and checkups. That's a major contributing factor in why the
administrative costs are so high.

2\. There's a shortage of doctors in America, and qualified doctors from other
countries are not allowed to practice medicine in the United States. So
there's good doctors from Canada, England, Japan, wherever that'd love to
practice in the USA, but can't. This artificially inflates doctor's wages by
restricting supply.

3\. American doctors are typically required to get an undergraduate degree,
medical degree, and do a below market, crazy hours residency in order to be
able to practice medicine. That's 8-10 years of study and below market working
to practice medicine. Now, medicine is very important and needs to be done
right, but I don't believe for a second that a focused apprenceship couldn't
teach a very specific kind of medicine - say arithscopic surgery - in just 2-4
years under a highly trained doctor, but this isn't an option.

4\. The Food and Drug Administration requires new drugs to be proven not only
for safety, but also efficacy. That's an incredibly high and expensive burden
to meet - that means that drugs need to be proven to work to a certain
standard, instead of just not harm. This adds years of development time and
millions of dollars in cost to the new drug development cycle.

Those are all legislated reasons that increase the cost of medical insurance,
doctors, and drugs. They'd be fairly easy to remove -

1\. All medical and health expenses can be written off taxes regardless of
insurance. Employees can choose to convert som of their wages to a medical or
health plan tax free to both the employer and employee. (Currently, under most
circumstances, only employer-provided health insurance can is tax free)

2\. Allow any doctor in a country with reasonably competent medical standards
to practice in the United States.

3\. Require that doctors be able to demonstrate that they can practice their
area of medicine capably. Be flexible in how they demonstrate that. Note: This
will incur high opposition from medical schools and current doctors who are
currently enjoying the wage premium and had to go through the very long,
difficult, and expensive system.

4\. Change the drug standard from "safety and efficacy" to only safety. Drugs
will come to market much faster and cheaper. There's plenty of people and
organizations that will test proven safe drugs for efficacy for free or
nominal cost once drugs hit market, and efficacy will get understood with
time. Put this way - a proven safe but questionably effective treatment
against heart disease being held off the market for five years and costing
much more to get to market is not a good thing. If it's certainly safe, then
let people make the decisions with their physicians, instead of having the FDA
take such a strong gatekeeping stance.

Technology has progressed such that we don't need government protection from
ourselves as much any more. The current set of legislation has greatly
increased the costs of doctors and medicine. Regardless of political position,
and regardless of stance on other health issues, addressing these four points
will make the medical system fairer, more effective, and and less expensive
with relative ease.

Admittedly, there's some powerful entrenched interests that are winning in the
current arrangement, and will oppose these simple improvements.

~~~
philwelch
A partial solution to #1 came about during the Bush administration--"Health
Savings Accounts", which are bound to your normal health insurance but work as
a regular savings account. You put pre-tax money into them, keep a balance
from year to year (the older MSA expired every year and you lost your money)
and you can even take your money out of the HSA, just by paying taxes on it.

It didn't catch on, largely because people are used to having relatively
comprehensive health insurance from their employers. Until you break the
employment/insurance bundling nothing else will budge. And no one who has a
job with health insurance wants to break the bundling.

~~~
fr0sty
An additional problem with an FSA (you can only get an HSA if you have a high-
deductable policy) is that the list of acceptable expeditures is limited and
the funds expire every year.

I would love to have some tax-free healthcare money to spend, but I cannot
guarantee that I will need penicillin, surgery, etc. this year.

I don't want to consign $5,000 to an account with a significant chance that I
will simply have to forfeit the money at year's end.

~~~
philwelch
Right, that's the point of the HSA. HSA's _don't_ expire every year, you just
put money into them, keep the money, and have the option of taking it back out
and paying taxes on it.

And at least in my state, $5000 is a high deductible--my provider offers a
$5000 deductible plan with an HSA. You do end up paying more than $5k out of
pocket before hitting the deductible since there's coinsurance and copays and
shit like that, but keeping $10-15k in an HSA--knowing you still have full
access to that money and it doesn't expire every year (and then perhaps
topping it off every so often)--is _not_ a bad plan.

~~~
Gormo
A better solution would be to combine HSAs and 401ks, which many people
already have, and allow tax-free withdrawals from the 401k to pay for
qualified health-care expenses.

------
listic
Can anyone please advice a good resource to read on how US health care and
health insurance system works? From a foreigner or extraterrestrial
perspective, preferably.

I dream of there being the site where I can read on different aspects of life
in various countries, such as education, health care, etc. all described from
a neutral point of view. But I'm afraid that such thing may not exist yet due
to little demand. I mean, how many people are thinking "hmm, which of those
250+ countries should I choose for living?"

~~~
old-gregg
If you are really interested, I highly recommend listening to this podcast
episode: [http://www.thisamericanlife.org/radio-
archives/episode/391/m...](http://www.thisamericanlife.org/radio-
archives/episode/391/more-is-less)

They explain in detail how our system works, explain the origins/history of
it, and also explain WHY it is so expensive. It's not a mystery, really,
especially for anyone who is involved.

TL;TR: it's expensive because "medical professionals" are greedy: they do
unnecessary procedures, hire and keep unnecessary bloated staff and, of
course, they overcharge for everything. The probability of you being diagnosed
with X goes up as the number of doctors specializing in X in your area
increases (listen the podcast for source), that's because the assholes just
can't stomach saying "there is nothing wrong with you" and letting profits
fall. Besides, you can simply look around: there is no reason for doctors to
be millionaires and drug sales reps to own aircraft. The system is expensive
because capitalism in healthcare is nonsense: you get greedy assholes milking
"customers" who are unconscious, scared or in pain.

What's annoying is that doctors enjoy the unexplained immunity from public
anger. It's always the "evil" insurance companies and "big pharma", or
government regulators, who are to blame, while its not uncommon for American
doctors to make million+ dollars a year delivering results that are no better
of their French counterparts. I invite you to a typical cancer clinic in the
US, you'll face devastated people who are dying, and who are getting ass-raped
by _handreds of thousands of dollars_ of medical bills _on top of having an
insurance_. Those poor folks are sitting in lavish doctor's offices furnished
with the most expensive hardwood flooring money can buy, surrounded by mind
blowing numbers of "support staff" who have nothing to do with medicine, yet
they too need to get paid. For _anyone_ who's ever been to one, question of
_"why our heathcare so expensive"_ has an obvious, straight, screaming in your
face answer.

My personal solution is radical, simple and effective: ban drug commercials,
introduce fixed salaries for doctors, and if someone's unhappy - GTFO, plus
open visas for Indian/French/Canadian doctors who'll be more than happy to
take their place. Yes, government is grossly inefficient, I know, but NOTHING
can be worse that this mess we're in. The amount of money extorted from the
public by "medical professionals" is just insane. I've worked for a semi-
military contractor that was selling to the government, wasn't rosy, but not
nearly as outrageous that this quasi-market monster of a healthcare we have.

~~~
old-gregg
Nice. And all those downvotes are telling me that nothing will change for the
better. There are simply too many smart and educated professionals who, not
surprisingly, get outraged by the idea that charging money for healthcare is
unethical and refuse the believe that capitalism just can't work in every
facet of the society. (hey, why not switch to a private army then?)

~~~
VladRussian
>hey, why not switch to a private army then?

it's happened half-way in Iraq and all the way in Afghanistan. Contractors
have 2 unbeatable advantages: 1\. KIA contractors isn't a political liability
like KIA soldiers and 2. contractors are outside of the law, thus can do
things regular troops aren't allowed to

------
todayiamme
You know this might be the perfect opportunity to make history. let me
explain. The thing that struck me the most about the post was that there was
no one thing to blame and there was no one way to fix this. That's the
thing.We are looking at the problem from the human frame of reference.

If someone can make a data analysis program that takes ALL of the data
generated everyday and crunches it together for every conceivable variable and
then uses machine learning to find common cost patterns vs. time and policy
(the time and date of execution of policies and their direct impact can thus
be judged). Then we might as well have magic in our hands.

This is hard data that no one can argue against (some will still manage...).
If we can make something like this might as well be the first time in history
that policy has been made using AI as a crutch. I hope that it won't be the
last.

~~~
yummyfajitas
The problem is not that we can't find the answer, but that we don't want to.
We have the technology to determine the effectiveness of many policy choices,
and we've had it for a while - it's called a randomized trial (basically a
great big A/B test).

We choose not to use it - it gave us results we didn't like the last time we
did.

<http://www.overcomingbias.com/2010/03/knowing-too-much.html>

<http://www.overcomingbias.com/2010/04/too-much-debate.html>

~~~
todayiamme
Than you for teaching me something so important. If you're right, and I know
that you are, it explains a lot of things that baffled me as well as why
people choose what the choose. Sometimes the best solution isn't the best
solution.

Thank you.

------
matrix
Good article, but I'm concerned the premises of the article have been skewed
by misleading graphs. The initial graph of GDP to medical expenditure is
reasonably convincing, the graphs later in the article much less so. I could
be wrong about this, but it feels a little like the data selection and curve
fitting have been selected to supported the hypothesis rather than the other
way around (something that could easily happen accidentally).

On a tangential note - that pie chart he uses in each section is an
unintentionally good example of what not to do when displaying data. I have to
confess, I don't really understand it.

~~~
nerme
What is his hypothesis? He doesn't seem to have any sort of agenda other than
saying that it is a complex issue that can't be solved by a political one-
liner like "tort reform" or "fixing big pharma".

------
kcy
Interesting article (<http://healthpolicyandreform.nejm.org/?p=12706>) in the
New England Journal of Medicine about a county in Colorado that was featured
in a New Yorker article
([http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_...](http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=all)).
This NEJM article describes some of the reasons poeple think this community
has been able to keep costs low but maintain high quality care.

------
shrnky
The reason we don't have a solution thus far is the fundamental disagreement
between those who want a total government solution(public option/healthcare)
and those that want a complete free enterprise solution.

The idea of the government deciding who lives and dies creeps me out. If you
are democrat remember power is cyclical and one day a republican may be
deciding whether you or your loved ones live or die.

I don't have the perfect answer, but I know it's not either extreme.

~~~
rubyrescue
I don't want to make this a huge political debate but i want to address the
point that 'X deciding who lives and dies', where X=government. Currently
we're just solving for a different value of X.

Certainly people _are_ deciding who lives and dies; life-saving care is denied
specifically by insurers, and implicitly by the fact that many don't have any
means to pay for care.

That's not an argument for or against single payer or full govt-run healthcare
(though i am for that - i just don't have time to get that into the
discussion)...

~~~
yummyfajitas
Actually, I'm curious - do you have much evidence that insurers are deciding
who lives or dies? I haven't even seen compelling evidence that _having_
insurance at all (let alone variations within insurance) will determine
whether you live or die.

------
mootothemax
I'd heard arguments that compared the UK's NHS spending to that of the US, and
after doing a couple of searches after reading this article, I found quite a
nice infographic here:

[http://www.visualeconomics.com/healthcare-costs-around-
the-w...](http://www.visualeconomics.com/healthcare-costs-around-the-
world_2010-03-01/)

Seems that this article matches up against the data in the infographic at
least.

~~~
galactus
Interesting. I have lived both in France and in Canada and I find the french
health system so much better that I find it hard to believe both countries
spend almost the same per capita.

------
VladRussian
So much debate around simple thing. A private enterprise (including medicine)
is driven by profit motive, that means decreasing cost (bottom line, quality)
and increasing margin (price).

In a free market, quality decrease and price increase is balanced by
competition. Once competition is severely limited and the minimal quality is
enforced through things like FDA - the sky is the limit for the price.

------
protomyth
How many new drugs on the market will not generate a lawsuit? What is the
average amount of time that a patent will last after the drug is approved for
sale?

------
jdavid
a few points

* that does not look like a best fit line, more like a curve

* maybe the curve should slope up more at the end?

* if the curve slopes up more at the end, maybe as you spend more you reach an asymptote. it would make sense if being the best at something requires more than a linear energy increase than being 2nd or 3rd best at something.

* doesn't John Nash's work explain this?

------
barrkel
Does anyone know how to disable the mobile view on this site on Android? It
clips the images, in particular.

------
known
I think Govt should pay _diagnosis_ fees and patients will pay for
_medication_.

~~~
old-gregg
You addressing the wrong side of the problem. The issue isn't WHO's paying,
the issue is _why so much_? Have you seen some of the bills that folks without
insurance are getting? Nearly every sort of surgery, no matter how trivial,
wipes out most people's savings plus some.

~~~
known
I agree. If we decouple diagnosis with medication, the patient will have the
option to choose medication based on his savings. For e.g
<http://en.wikipedia.org/wiki/Coronary_artery_bypass_surgery> is done for
$1000 in India. Check <http://en.wikipedia.org/wiki/Medical_tourism>

~~~
icegreentea
What's $1000 adjusted for cost of living in India? No doubt it's still cheaper
than US after that, but I would believe the gap narrows considerably.

