* Where are the cost savings in health care?

Topics: Health
20 Oct 2009

From: Ervan Darnell


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Obama is promising cost savings, but not actually proposing anything
that would save cost. Instead, he's proposing several changes that will
raise cost. His main idea seems to be that if we just pay less, we'll
save on care. Sure, by getting less than we want. I can save more on
medical care: outlaw it, we'll save a bundle. Of course, that seems
like a bad trade-off. Obama is proposing the same trade-off, but just a
smaller dose of it. It's just like unemployment, I can cure it: outlaw
farm machinery (Democrats commit this "broken window" fallacy
frequently, the bailout of GM comes to mind).

Three candidates that make sense to me are:

1) We are consuming more medical care because there is more innovation
to consume. To the extent this is true, there actually isn't any
inflation.

2) Regulatory burdens increase. This is certainly true, but I don't
know it's impact.

3) Defensive medicine against tort. Some serious studies (sorry, lost
the reference), put this around 20% of cost, and not rising much as a
percentage of medical care.

My thought today is that efforts to measure the impact of tort are
looking only at the obvious cases of unnecessary tests, not the long run
ratcheting it induces. What if someone offered yesterday's technology?
They obviously open themselves to tort if something goes wrong. Why is
it that no insurance company offers the set of procedures that existed
in 1990? That would roll prices back to 1990 levels (to the extent that
(1) is the explanation). Given the difficulty of paying for insurance,
it seems like that would be viable for some people. Employer-based
insurance and government-based Medi* destroying demand elasticity are
obvious candidates for why this doesn't happen, but it seems like tort
is an issue here too. How long would it take before such a policy (or
doctor accepting the terms) were sued for inadequate care? (3) may be
pushing (1).

I ran across this the other day:

> Luethy: In dogs, open-heart surgery is about $6,000 to $12,000. In
people, we may be talking $200,000 total. [1]

Any discussion of medical costs needs to address this disparity of 20X.
The obvious differences are: a vet's office is not as safe, dogs have
different heart problems than humans usually, there is actual retail
competition for prices, there is less regulation, and there is less tort
risk. Which ones are the real cost drivers?

And while on the Veterinary example, dogs get better care in England
than humans do, mostly because their care isn't "free" or as carefully
regulated [2]. In Canada humans wait 3 months for an MRI and dogs wait
3 days[3]. The impact of socialized care is obvious. The immediate
point here is does the U.S. suffer higher cost for human health care as
a consequence of excess tort and regulation?

---------------
[1] http://www.usaweekend.com/03_issues/030615/030615petvets.html
[2]
http://online.wsj.com/article/SB10001424052970204908604574334282143887974.html
[3]
http://iwarrior.uwaterloo.ca/?module=displaystory&story_id=2969&format=html&edition_id=78


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Obama is promising cost savings, but not actually proposing anything that w=
ould save cost. Instead, he's proposing several changes that will rai=
se cost. His main idea seems to be that if we just pay less, we'll sa=
ve on care. Sure, by getting less than we want. I can save more=
on medical care: outlaw it, we'll save a bundle. Of course, that see=
ms like a bad trade-off. Obama is proposing the same trade-off, but j=
ust a smaller dose of it. It's just like unemployment, I can cure it:=
outlaw farm machinery (Democrats commit this "broken window" fal=
lacy frequently, the bailout of GM comes to mind).

Three candidates that make sense to me are:

1) We are consuming more medical care because there is more innovation to c=
onsume. To the extent this is true, there actually isn't any inflatio=
n.

2) Regulatory burdens increase. This is certainly true, but I don't k=
now it's impact.

3) Defensive medicine against tort. Some serious studies (sorry, lost=
the reference), put this around 20% of cost, and not rising much as a perc=
entage of medical care.

My thought today is that efforts to measure the impact of tort are looking =
only at the obvious cases of unnecessary tests, not the long run ratcheting=
it induces. What if someone offered yesterday's technology? Th=
ey obviously open themselves to tort if something goes wrong. Why is =
it that no insurance company offers the set of procedures that existed in 1=
990? That would roll prices back to 1990 levels (to the extent that (=
1) is the explanation). Given the difficulty of paying for insurance,=
it seems like that would be viable for some people. Employer-b=
ased insurance and government-based Medi* destroying demand elasticity are =
obvious candidates for why this doesn't happen, but it seems like tort is a=
n issue here too. How long would it take before such a policy (or doc=
tor accepting the terms) were sued for inadequate care? (3) may be pu=
shing (1).

I ran across this the other day:

> Luethy: In dogs, open-=
heart surgery is about $6,000 to $12,000. In people, we may be talking $200=
,000 total. [1]


Any discussion of medical costs needs to address this disparity of 20X.&nbs=
p; The obvious differences are: a vet's office is not as safe, dogs have di=
fferent heart problems than humans usually, there is actual retail competit=
ion for prices, there is less regulation, and there is less tort risk. =
; Which ones are the real cost drivers?

And while on the Veterinary example, dogs get better care in England than h=
umans do, mostly because their care isn't "free" or as carefully =
regulated [2]. In Canada humans wait 3 months for an MRI and dogs wai=
t 3 days[3]. The impact of socialized care is obvious. The imme=
diate point here is does the U.S. suffer higher cost for human health care =
as a consequence of excess tort and regulation?

---------------
[1] l">http://www.usaweekend.com/03_issues/030615/030615petvets.html
143887974.html">[2] 052970204908604574334282143887974.html">http://online.wsj.com/article/SB100=
01424052970204908604574334282143887974.html

[3] y_id 2969&format html&edition_id 78">http://iwarrior.uwaterlo=
o.ca/?module displaystory&story_id 2969&format html&editi=
on_id 78



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