Monday, June 15, 2009

The Costs Of Health Care. Part IV: Whom To Blame?

Is it the malpractice suits where careless and greedy individuals suck the system dry so that obstetricians stop practicing altogether due to the high insurance premia and all doctors over-prescribe tests in the form of defensive medicine? Is it all those illegal immigrants crawling across the border nine months pregnant, with other babies strapped to their backs, so that they can come and use American health care?

That's what the wingnuts would have us believe. But in fact the effects of malpractice suits and malpractice insurance are minor when compared to the overall health care costs, and this even includes the so-called defensive medicine. Likewise, illegal immigrants are too few to account for the high costs of health care, even if they suddenly decided to act like the worst right-wing stereotypes.

Sadly, the left is not doing any better. Almost every conversation I read about this topic blames the pharmaceutical companies or the greedy health insurance system for the high health care costs, or most generally, just the profit motive. But prescription medications only account for roughly ten percent of health care costs and many health insurance providers are not-for-profit organizations. HMOs are predominantly not-for-profit. There are still more beds in not-for-profit hospitals than in for-profit hospitals, and roughly half of all nursing homes run on the not-for-profit basis.*

On the other hand, that old myth about the kindly physician practicing all alone from his or her office is both highly valued on the left AND a description of a for-profit entrepreneur. It's as if we all wear blinders when discussing health care.

Looking for a culprit may not be terribly useful, but for those who wish to do that, let me point out that the largest cost item in the U.S. health care is hospital use. Indeed, if we lump nursing homes and hospitals together as institutional care we note that more than half of all health care spending goes there. The next largest source of expenditure is physician services.

Now, such an accounting approach to health care doesn't tell us much about whom we might want to blame. But it does point out those areas where even small percentage savings in costs could mean large piles of actual dollars saved.

An alternative way of approaching this question is to note that the largest health care expenditures usually take place in the year immediately preceding a person's death. It is terminal care which is expensive, for obvious reasons. It's probably equally obvious why addressing the high costs of end-of-life care is fraught with ethical and legal problems of all types.

I'm not convinced that any of these simple approaches are terribly useful, because the real reasons for the high U.S. health care costs are complicated. Really. The world, in general, is complicated. But looking at the incentives the current system provides all the various participants might be useful to do. How do the private firms compete in health care? Why isn't competition lowering prices? Do we pay physicians in a way which gives them incentives to spend money inefficiently? Do we use paramedics and other health professionals in the best possible way? What incentives do we give patients who are insured or uninsured? And so on.

I suspect that all those simple scapegoats I listed at the beginning of this post are partly chosen because they wouldn't only offer us simple solutions to the high costs. They would also offer almost painless solutions! Just get rid of those greedy malpractice suits! Just get rid of those greedy insurance companies! Note how nothing of value needs to be cut when the stories have those plot.

In reality something of value will have to be cut. The task is to find out the least valuable bits to cut or at least to prevent from growing. Sort of like economic surgery.

*The best general source of data on health care in the United States is Health. United States. It is available on the net here, and I consulted the Chart Book (including Tables 116 and 127) of the most recent version (2008) for some of this data. Other data I pulled out of my memory.

The earlier parts of the series can be found here: Part I, Part II and Part III.