Showing posts with label per capita health care expenditure. Show all posts
Showing posts with label per capita health care expenditure. Show all posts

Tuesday, January 3, 2017

Americans Can't Do The Basic Health Care Arithmetic








A minimum of $300 billion dollars saved.  That is what I thought could be achieved by eliminating insurance companies from the American health care system.  It turns out the savings are a lot bigger than that.  Just looking at countries where the per capita health care costs are at least $2500 and comparing the USA to Switzerland - the country with the next highest per capita health care costs we get the following equation:

$2640 (the difference) x 320 million (current population the the US) = $844.8 billion

That is what converting the US health care system to single payer would involve.  No more managed care companies (MCOs)  pretending to be efficient.  No more pharmaceutical benefit managers (PBMs) rationing medications in order to make profits.  No more outrageous Obamacare premiums that seem to be rising with no end in sight.  No more MCOs, and PBMs making your doctor's life miserable and burning him or her out.  The writing should be on the wall by now for all Americans.  The US Congress and their healthcare lobbyists fully intend to continue the unsustainable health care bureaucracy to every American until the last possible moment.  That is as true for Republicans as it was for Democrats.

What do I mean by unsustainable?  According to KFF.org in 2016 employer purchased health insurance policies averaged $18,142 per year ($12,865 paid by the employer and $5,277 paid by the employee).  For retirees the situation is even more stark.  I used the AARP calculator to look at estimated health care costs only in retirement for a theoretical couple retiring at 66.  The result was an estimated $225,463.  Of that total only $121,529 was covered by Medicare and that left a shortage of $103,934 in out of pocket costs.  To me that means the average Social Security dependent senior citizen in this country cannot cover their health care costs even with Medicare.  Some of them are telling me their supplemental policies are as high as $20,000 to $25,000/year.  For any couple trying to stay in their own home in retirement - health insurance premiums and property taxes will easily absorb most if not all Social Security income.  The gross estimate by this calculator varies from state to state but some sources have given the gross average amount for a retired couple to be about $260,000.

And where does all of that money go?  That is easy.  It goes to bad management.  In a country that has fewer doctors and fewer hospital beds than most countries in the above graph - it should be obvious that rationing medical care to make profits for Wall Street does not work.  Two recent experiences will illustrate the problem.  I heard a presentation given by a speaker from one of the major physician run medical clinics in the  US.  For some reason she started talking about the ratio of administrators to physicians in their organization.  The number given was 50 administrators to every physician.  That is an absolutely stunning number.  With that number of people in hospitals and clinics - it should raise the question "What are they doing there?" and "Why does it take this many people to administer the most accountable professionals in the US?" Not only that but what has all of this administrative oversight accomplished?  The answer is in the graph at the top of this page - the most expensive and most inefficient health care system in the world.  It is basically an expensive jobs program for managers and bureaucrats, and bad technology.

The second scenario was a physician talking with me about his speciality clinic of 5 physicians.  He recently learned that they were being administered by 15 mid level administrators reporting to a single higher level administrator.  When he questioned this practice, he was asked why he was concerned about the number of administrative staff.  I guess according to the previous estimate he was doing quite well with a ratio of 16 administrators for 5 medical staff.

The real impetus for this post occurred as I was doing some exercises at home before work this morning.  The Today show was playing in the background.  Matt Lauer and Katie Couric were interviewing Trump advisor Kellyanne Conway about a number of issues.  I heard the question: "Have they (Republicans) come up with something to replace Obamacare?"  Ms. Conway responded with the typical free market solutions - buying insurance across state lines, health savings accounts, etc, etc.  None of these are solutions to bad management and what is basically corporate welfare for the army of healthcare administrators in this country.  The only correct response to that question is:

Single-payer health insurance.

Get rid of the unnecessary managers and save a trillion dollars in mismanagement.



George Dawson, MD, DFAPA


Attribution:

The figure on per capita health care spending is from the Kaiser Family Foundation accessed on January 1, 2017 and this is their citation:

OECD (2016), Health spending (indicator). doi: 10.1787/8643de7e-en (Accessed on 01 January 2017).

 I have no affiliation with the Kaiser Family Foundation or the OECD and their graphic is used here per their terms of use for non-commercial, non-profit sites.


Supplementary 1:

I would be remiss in not pointing out the mountain of fake news that goes into getting Americans to believe that some kind of government led "reform" that concentrates market power into a few for-profit proxies is a good idea.  There is the associated fake news from both parties that just happens to leave the pricing power to private industries,  In that context the fake news by Ms. Conway this morning is all part of an unmistakable 30 years of nonsense stretching back to the Clinton administration and their idea about "managed competition".  We have had nothing but mismanaged competition ever since.  The dynamic in health care is an obvious parallel to the financial services industry and their guaranteed profits from the work of Congress.  In both cases, all Americans foot the bill.


Supplementary 2:

Let me remind the free market advocates that there is not now and there will never be a free market in health care or anything else in the USA.  It is (largely) a Republican fantasy.  The major markets in the US all depend on government intervention and the sector with the best lobbyists gets the most favorable deals.  It is the only way to explain a trillion in waste, just based on "free market management" not including other boondoggles like a highly regarded electronic health record that is less functional than 1990s database software and paying $300 for 29 cents worth of epinephrine.





Tuesday, August 13, 2013

Lessons on Medical Pricing and Service from My Toyota Dealer

I really like my Toyota dealer.  They advertise that they are one of the most successful dealerships in Minnesota and I have no reason to doubt that.  Everytime I end up waiting in their customer service area there are anywhere from 30 - 50 people waiting with me.  Everybody checks out at the same cashier.  Everybody hears the conversation between the customer and the service manager and basically the fact that the customers seem uniformly satisfied and all of their problems have been addressed.  As I sat there today looking at a long line of satisfied customers I thought of a comparison with medicine.

Let me start off discussing my parallel by saying that I have always been a proponent of medical pricing being one of the most significant problems in health care.  The example that I frequently post is the difference between an MRI scan of the cervical spine in Japan ($150) to the cost of the same scan in the US ($1200).  But in other posts I have compared the costs of formulary to non-formulary drugs and the steep discounts that frequently apply to services by physicians.  Economist Ed Lotterman discusses the effects of price discrimination in health care at this link and the reason why health care companies do it.  They make more money even though they end up charging much higher prices to the people who can afford it the least.  There are many other subtle (if you don't think about it too long) ways of rationing medical services to provide a high volume low quality product that really does not address the problems that most people want.  As an example, I was shocked in 1987 when I encountered for the very first time a physician who refused to answer any questions about a "second" problem.  He was obviously annoyed when I asked him about a medical concern that was not identified as the reason for the appointment, even though I am certain he could have answered the question in two minutes.  The people at my Toyota dealer frequently have two or three or even five problems and the service manager calmly explains what has been done  or what the cost will be in the event of a major repair.

As I thought more about it, my name was eventually called and I walked over to pick up the car and review what had been done.  I thought I might need a price list for a comparison, so I walked back out into the service area and talked to a service manager who looked like he was about my age.  I asked him for a price list and thought about what kind of reaction that  would get in a medical clinic - not just the price list but asking additional questions after the appointment with the doctor was officially over.  He enthusiastically replied: "No problem at all sir.  It is tricky to find on our web site.  Let me show you how to get it there.  And let me print it out for you.  My usual printer doesn't do a good job, so let me send it to a better network printer."  Within a minute it was in my hand.  None of the gasping and eye rolling that you might expect in a medical clinic.

What is a fair comparison?  I decided against emergency departments.  Car repairs are generally not life or death, even though a lot of people with non-emergency problems end up staying in emergency departments for a long time.  I decided that urgent care and primary care clinics were problems the best comparisons.  The Toyota dealer has three levels of maintenance based on mileage or time:

Yellow Service
Every 4 months
$72.95
Green Service
Every 12 months
$219
Blue Service
Every 24 months
$379


The price list shows all of the specific tasks that this dealer does for car maintenance and the task list is longer as the price increases.  I can't post any medical comparisons because the actual price that you will pay is unknown.  If you are insured, your insurance company generally negotiates prices with a clinic that are generally much lower than you would pay if they billed you their usual retail price.  Practically all physician billing would occur at the Green or Blue Service level.  As I look at the Yellow service, it is strictly maintenance without the services of a diagnostician.  How many times have you had to see a doctor in order to get lab tests or an x-ray?  There are a list of things you can get from Toyota without seeing a mechanic.

What about affordability?  Everybody in the service center today was driving a Toyota ranging from essentially new to at least 6 years old (the age of my car).  Everyone with a fairly new car wants to keep the warranty current by doing the suggested maintenance.  There will always be some outliers who never change their oil, but let's assume that people generally want to protect their investment for at least 6 years or 100,000 miles.  What is the trade off in terms of investment at risk driving service fees?  If we look at the current per capita health care expenditure in the US it stands at $8,233 per person per year.  According to the Kaiser Family Foundation in 2012, the average cost of insurance for a family was $15,745 with the worker paying $4, 316.  Worker only coverage averaged $5,615 per year with the annual cost to the worker of $951.  The current cost of health care for a retired couple at age 65 with Medicare is estimated to be $220,000, not including nursing home care.

The 5 or 6 year cost of health insurance for a family costs the same amount as just about any brand new Toyota on the lot.  There are a couple of potential questions about the value of the purchase.   If we are considering non emergency and routine medical care, does the purchaser of health insurance get the same value as the purchaser of a new Toyota?  Or is medical insurance purchased strictly to protect the family against bankruptcy associated with a medical catastrophe?  And do your get the same level of service?

On the service level,  I don't think that primary care or urgent care clinics can compare to my Toyota dealer.  I just learned today that they are open until midnight and they see all of the walk ins who want to be seen at all times.  Their pricing is completely transparent and affordable to everyone who pays the same amount for health insurance that they would pay to purchase a new Toyota every 6 years.  That is basically any family purchasing health insurance.  Technology is a frequent argument to justify the high cost of American medicine, but people purchasing hybrids are the beneficiaries of a $6 billion research project by Toyota that put them at the forefront of that technology and made it as cost effective as purchasing any other new car.  Technological innovation like that in medicine rarely translates into a cost effective solution for patients that quickly.

Without government mandates and the threat of bankruptcy, I think health insurance would be a very difficult product to sell based solely on market factors and the actual service you get for the money.  That is what health care companies like to call value.  I guess the bright side is that we all don't have to purchase an insurance product that would allow us to get a new car.  It is hard to imagine how bad that product and the service of that product would be.

George Dawson, MD, DFAPA

Disclosure:  Not a stockholder in Toyota.  My only interest in Toyota is in keeping my car running well.

References:

Ed Lotterman.  Price discrimination:  Free market at work.  November 15, 2009.

Ed Lotterman.  Trip to hospital illustrates complexities of health care pricing.  December 23, 2012.