Let's Call the Whole Thing Off
From today's Wall Street Journal "A Better Way to Reform Health Care":
"To bring down healthcare costs, we need to change the incentives that govern spending. Right now, $5 out of every $6 of health-care spending is paid for by someone other than the person receiving care—insurance companies, employers, or the government. Individuals are insulated from the reality of what their decisions cost. This breeds overutilization of low-value health care and runaway spending.
To reduce the growth of costs, individuals must take greater responsibility for their health care, and health insurers and health-care providers must face the competitive forces of the market. Three policy changes will go a long way to achieving these objectives: 1) eliminate the tax code's bias that favors health insurance over out-of-pocket spending; 2) remove state-government barriers to purchasing and providing health services; and 3) reform medical malpractice laws.
These three policies offer advantages over the president's plan. Instead of raising health-care costs, they fundamentally change incentives among individuals, insurers, and providers to gradually slow the growth in costs by reducing inefficient demand without sacrificing quality and innovation. Instead of radically changing health care overnight, they take an incremental approach, respecting the tremendous uncertainty surrounding the effectiveness of different approaches to rein in costs.
The president's plan is failing because it does not speak to the concerns of the majority of Americans. Instead of addressing the high and rising costs of care, it proposes mandates, invasive regulation, and unaffordable new entitlements. This will not bring health-care costs down—it will only make this problem worse.
Our recommendation: scrap it and start over."
MP: The chart above shows the declining share of out-of-pocket payments for total health care spending, according to the Department of Health and Human Services, and it's even worse than the $5 out of $6 the authors report in the WSJ. It's actually closer to $8 out of every $9 of healthcare spending that is paid by someone other than the person receiving care, i.e. with OPM (other people's money), since out-of-pocket payments covered only 11.88% of total health care spending in 2008.
"To bring down healthcare costs, we need to change the incentives that govern spending. Right now, $5 out of every $6 of health-care spending is paid for by someone other than the person receiving care—insurance companies, employers, or the government. Individuals are insulated from the reality of what their decisions cost. This breeds overutilization of low-value health care and runaway spending.
To reduce the growth of costs, individuals must take greater responsibility for their health care, and health insurers and health-care providers must face the competitive forces of the market. Three policy changes will go a long way to achieving these objectives: 1) eliminate the tax code's bias that favors health insurance over out-of-pocket spending; 2) remove state-government barriers to purchasing and providing health services; and 3) reform medical malpractice laws.
These three policies offer advantages over the president's plan. Instead of raising health-care costs, they fundamentally change incentives among individuals, insurers, and providers to gradually slow the growth in costs by reducing inefficient demand without sacrificing quality and innovation. Instead of radically changing health care overnight, they take an incremental approach, respecting the tremendous uncertainty surrounding the effectiveness of different approaches to rein in costs.
The president's plan is failing because it does not speak to the concerns of the majority of Americans. Instead of addressing the high and rising costs of care, it proposes mandates, invasive regulation, and unaffordable new entitlements. This will not bring health-care costs down—it will only make this problem worse.
Our recommendation: scrap it and start over."
MP: The chart above shows the declining share of out-of-pocket payments for total health care spending, according to the Department of Health and Human Services, and it's even worse than the $5 out of $6 the authors report in the WSJ. It's actually closer to $8 out of every $9 of healthcare spending that is paid by someone other than the person receiving care, i.e. with OPM (other people's money), since out-of-pocket payments covered only 11.88% of total health care spending in 2008.
11 Comments:
This particular graph that you've posted from the WSJ is misleading and not to the point of the real problem. Out of pocket costs may be reduced, but the graph does not take into account the increase in premiums.
Secondly, the graph seems to miss the real point, and that's the percentage of overall healthcare cost to the individual through premiums and out of pocket against average income....
Reform is important, but, it starts with competition and barriers against collusion. Focus on reducing costs, streamlining insurance claims, and reducing corporate bureaucracy that prevents effective distribution of current health care... Then focus on reduction of malpractice laws.
"Other peoples money" includes insurer and employer.
That is misleading
It almost sounds like we have socialized medicine today...
This is a misleading statement to say "other peoples money": when you say that "insurance" pays for healthcare, who pays for insurance ???: it is either an employer or employee who purchases insurance....so most healthcare already is purchased by individuals, either as part of a pay package or individually.
The audience of this blog is more intelligent than you think.
When you say that an employer pays for insurance, this is the result of a bargain for a pay package: pay me this money or this benefit of this amount.
In the end, it is the employee who pays.
I agree that it's mislabeling to call insurance "other people's money" as you're ultimately chipping in yourself. While the broader point stands, that third parties are making the decisions that consumers should be making, the distinction isn't about other people's money even with government money, as many people are paying in taxes for that too, but that third parties, whether govt or insurer, are controlling and redirecting that money to pad their pockets and not for the ultimate benefit of the consumer, in fact making us much worse off.
"It almost sounds like we have socialized medicine today..."...
So you don't think that HMOs & PPOs are a form of socialist medical care, eh?
See what happens when you let the camel's nose into the tent?
This is a misleading statement to say "other peoples money": when you say that "insurance" pays for healthcare, who pays for insurance ???
Good question, who pays for Medicare, Medicaid and SCHIP? What about the increased medical costs resulting in the government under payment associated with these programs?
People keep saying we have the best health care system in the world etc. But evidently it is nearly a government program already. Why not just do it the way we handle national defense?
People say we have the best military in the world, bar none, and not a dime is wasted.
Why not a National Department of Health?
@anon1
We do have socialized medicine... our Veterans have socialized medicine...
And is it good? Oh Yeah
Have you been to the DC VA in the past 10 years? Why did it turn out to be good? Because money was invested CORRECTLY. It was a package for our veterans, from top to bottom. It was both comprehensive and preventative.
Not that I think its the most cost effective way to solve healthcare, as the amount of jobs that'd be eliminated would be absolutely mindboggling. It's an interesting concept to explore further other than a 'get your hands off my healthcare'... as I don't see the veterans ever complaining about their health care.
Employer-provided insurance isn't OPM. It's YOUR money. It's part of YOUR compensation.
The problem of zero or low marginal cost of medical expenses causing excess demand doesn't disappear if you bought your own health insurance plan.
I agree that more services should be out-of-pocket and insurance reserved for catastrophic events, but you've oversimplified OPM to the point where the true nature of the problem is unrecognizable.
Doug: Yes, technically, your employer-provided health insurance is "your" money, but most people don't think of it that way, they only think about the expenses THEY pay out-of-pocket. For example, people don't think like this: "I should be really prudent, conservative and cost-conscious about all of my medical spending, because ultimately it's part of my compensation."
No, they will only be cost-conscious when it comes out-of-pocket, at least in general and on average. So it if doesn't come directly out-of-pocket, we treat it as OPM. If you object to that term, we could alternatively use "third-party payments," which is basically the same thing.
Anonymous said...
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This is a misleading statement to say "other peoples money": when you say that "insurance" pays for healthcare, who pays for insurance ???: it is either an employer or employee who purchases insurance....so most healthcare already is purchased by individuals, either as part of a pay package or individually.
How is the insurer's or employer's money not other people's money simply because it was paid by individuals or is a portion of compensation?
There's no right for the individual to access it for any other purpose. And no right to it if unused. And no right to it after premium payments stop or employment stops.
Once people's money is out of their control, it is other people's money. Their efforts to personally reduce usage of that money won't benefit them, and their use of that money will benefit them.
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