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Health Care Costs

Where does the money go?

Health care is more costly in the US than other countries for a number of reasons.

1. Administrative costs. The US has much higher administrative costs - around 30% of the total (including the whole insurance and insurance brokerage industry which isn't needed when the government provides health care). The HMOs have driven down doctor costs, but add their profit.

2. End of life care. For many people, most of their lifetime health costs are for the last year of life. In other countries, the government can more easily refuse extraordinary measures that are unlikely to help someone dying.

3. Chronic illness. Chronic illness consumes a large portion of costs, and the US has more because it has more obesity related illness (diabetes, heart disease, high blood pressure). Other countries like Japan have more smoking, and thus have more smoking related costs (lung disease). Most of the costs for chronic illness and end of life care are for a small percentage of people. As of 2005, 33 states have already enacted Health Insurance risk pools to subsidize health insurance for those with pre-existing conditions (the chronically ill).

4. Drug costs. The US doesn't limit profits on patented drugs like other countries. However, drug costs are only 10% of total health care costs, although they have increased recently from 5% of the total. Many patented new drugs are no better than existing alternatives, they are simply marketed more, thus driving up costs. [Almost 90% of the cost of prescription drugs is for three categories: painkillers (54%), muscle relaxants (18%) and antidepressants (15%). Drug companies have a profit incentive to market new drugs, regardless of whether they are better than the old ones.]

5. Quality Care (or excessive care?). People in the US have more money and are willing to pay more for state of the art service - after all, what is more important than your health to spend money on? They pay for more tests than would be approved by the government in other countries. Another way to look at this is that it is excessive care - many of the extra tests, etc. don't produce improved results, and we have tax deductions which lead to excessive insurance and treatment.

How to cut costs

- cut out the middleman (insurance companies) for most care
- put patient, not insurance company, in charge of cost/benefit decisions
- encourage healthy lifestyles with reduced premiums
- lower premiums for foregoing extraordinary end of life care
- cut FDA approval costs, and thus drug costs, by limiting pre-approval testing to safety, not efficacy. Once in the market, require efficacy studies and then labeling. Expensive patented new drugs could be compared to cheaper old drugs

Effect of hybrid plan on costs.

The hybrid plan appears to address most of the factors contributing to costs. Reducing the reliance on insurance and having the patient make care decisions will reduce administrative costs. Ever wonder why the cost of electronics has plummeted with increased capability (calculators have gone from $400 to $4 with more functions), yet lab tests cost more? Because they are paid by insurance, doctors and patients have no incentive to shop around and induce competition. Patients will also do a cost-benefit analysis that will cut end of life care costs (by paying for only the insurance coverage wanted) and drug costs. Chronic illnesses that are due to user behavior we be reduced as patients are financially motivated to reduce risky behavior. Some businesses are already adopting rebates or discounts for employees who don't smoke and have a healthy lifestyle. Some have said that if potential death won't deter people, financial incentives won't. However, potential death is far in the future, the money is paid today.

The distorting incentives that make the system more costly could be removed:
- end tax deduction, which leads to excess insurance
- pay for results, not treatments regardless of effectiveness
- eliminate government requirements that a host of treatments be covered (hair prosthesis, pastoral counseling, acupuncture, etc.). This is like requiring the poor to shop at Nieman Marcus.

Effect on quality. To keep our best going to medical school, there must be a good salary to be earned. To keep new drugs and treatments being developed, money must be available, either through the government or in potential profits. Most Americans would probably prefer a market economy as the best way to insure continued development. The hybrid system supports this by making the patient the customer.

Patient decisions - Make more information available.

Many say patients aren't informed enough to make cost benefit decisions, or that doing so reduces quality of care. In fact they can, and quality is already compromised by someone else making the decision. For example, does a single male without drinking, mental or drug problems need to buy a policy that covers pregnancy, family planning, mental and alcoholism disorders? Can't some people decide to pay lower premiums now to forgo extraordinary measures at the end of their life? One can choose a local rather than general anesthesia, over the counter vs. prescription pain relievers. Many states now require insurance to cover pastoral counseling, marriage counseling, chiropractors, acupuncture, massage therapist, social workers, IV fertilization, and hair prosthesis. Wouldn't you rather be able to make the trade off for lower premiums? Many decisions already require other tradeoffs - a colonoscopy vs. less invasive sigmoidoscopy - the colonoscopy has better screening but more risk of injury during the procedure and more patient discomfort.


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