Reason for a New Age

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    What you will expect to see here are discussions of politics and tangentially economics. This blog will do its best to present a rational look at the world of today, how the modern world came into place, and the issues that are currently being discussed in the public realm.
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Posts Tagged ‘health care’

Follow-Up: The Cost of Health Care

Posted by publius2point0 on 2010/06/24

Here is a report from the Congressional Research Service into where our money goes and why we spend so much on health care. While more nuanced and raising more possibilities than I did in The Cost of Health Care series, some various skimmings lead me to believe that it more or less supports what I’ve written.


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Why the Health Care Bill Doesn’t Matter One Jot

Posted by publius2point0 on 2010/03/22

If you look back at the history of countries as they converted to universal health care, you’ll notice that the amount they spent per capita didn’t change at all. The angle of the line of spending increase from year to year did not lower, nor did it increase. If you look at the yearly spending on health care on a country over a 60 year period, you cannot tell by looking at it whether universal health care was passed in that country within that time period. The only way to know is to specifically look it up. And given that the US is the only modern country which has not passed universal health care, there isn’t a shortage of examples.

There’s a reason for this: People don’t allow people to die, or at least not in a country that has any chance of getting universal health care passed. In the US, if you are sick and can’t afford it, you go to the emergency room. The money to pay for your care doesn’t come from nowhere, someone is paying it. There are, in end effect, 0 people in the nation who are not covered by health care (though it’s unofficial).

Now the way that taxes work is that people who don’t have money, even if you tax them, the money goes right back. And of everyone who’s worth taxing, only a small percentage hold almost all of the money. Taxing anybody else but those people holds no particular value.

Let me show what I mean.

The income distribution of the US looks about like this:

(Rough) Income Distribution

That’s just a rough estimate from trying to modify the formula for a skewed normal distribution to match the true distribution of wage in the economy. It doesn’t quite fit the real distribution, but having a formula allows me to get a nice curve and do math on it.

Multiplying the wage by the number of people with that wage, we get a chart that looks like this:

I can tax all of the people making $350k or more anything from 0% to 100% and  the amount of money I’ll have is only a small percentage of all money in the American economy. The US government requires about 40% of personal income to be able to operate and you can’t get that much money from anywhere but under $150k a year (approximately).

But, as you will recall from our discussion of the minimum wage, anyone making less than $11.25 an hour ($32,400 a year) is actually costing the rest of society money just for that person to survive at the minimum standards of society. If you look at the distribution of taxable wage in the US under that light, it actually looks like this:

Truly Taxable Income Distribution

People talk about “fair tax” or “progressive tax” or whatever else, but the simple truth is that all tax comes from the people who have the money to be taxed. The economy is a big loop, every time you take money from where it isn’t, money is leached off from where it is via some means, to eventually end up at that point. There’s no other viable way of taxing anyone. To a large extent, all discussion of what the tax rate should be per income bracket is entirely meaningless. The only way in which it truly matters is that for money to meander its way from where it is to where it is going, the more loops through the system it takes to get there, the lower the rate of efficiency. You end up employing more people to deal with moving money from point A to point B for every iteration through the loop it takes, which is a needless waste.

What this means is that your personal tax rate doesn’t matter, just whether or not the government is spending money on something worthwhile. The amount you make will, in end result, will not change a jot (over the long term) as the tax rate changes so long as what the government is actually spending money on is still the same.

Right now, the government is covering the cost of care for everyone who can’t afford it, via money for the ER. That same amount of money will henceforth be spent on the cost of care for everyone who can’t afford it, via money for insurance. That total amount will be exactly the same, because that’s proven by every other nation which changed to universal health care. And in end result, the amount of taxable money being made by everyone doesn’t change.

The only difference that will emerge is that when the poor need care, they go to a doctor instead of to the ER. That is probably better, but it’s hardly a sweeping change.

The main problem with the new legislation is that it does not solve the issue of cost. For that to have happened, all care would have either have needed to go through the government, or for all insurance to become paid by the individual directly, instead of by his company. Eventually this change will occur, since if it doesn’t health care spending will continue to grow past feasibility, but for all that time until then, it continues to be an unnecessary burden on the economy.

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The Cost of Health Care – Conclusion

Posted by publius2point0 on 2010/01/06

The Combined Excess Costs of Health Care
I have listed several theories now of where our excess spending is or may be going. The results are summarized below:

Insurance Administration Overhead: $50-100
Insurance Profit: $210-500
Pharmaceuticals: $360
Medical Equipment: $160
Tort Reform: $0-550*

Minimum Total: $780
Maximum Total: $1670

Even given the maximum total, you will note that we have not hit our goal. The US currently spends about $6100 per person per year on health care. We should be paying no more than about $3000. We have only identified a portion of the excess $3100.

As I noted in part 4, however, I suspect that the rest of that money goes towards nicer buildings, nicer rooms, better service, and other non-medical niceties that make American patients feel like they’re getting something special out of their health care package. In end result though–i.e. as regards actual health–almost certainly most of this is needless waste.

Of course, I might be wrong. But of all theories that I have examined, it seems the most plausible and supported by our excess spending on pharmaceuticals and medical supplies, for which I do have accurate information. Assuming this money to come, principally, from the 31% of spending which goes to hospital care, if that number could be halved, another $946 would be saved, which starts to get us into the region where the remainder could be explained by simple inefficiencies or having overly conservative estimates.

* The $550 number is assuming a 9% decrease from the current per person per year spending of $6100.

Combined Proposals
I have stated several specific policy proposals through the series. Firstly, here are the suggestions which I believe to be fairly inarguable. They are well supported by data and reason.

1) State-by-state restrictions for insurance providers should be revoked and insurance companies encouraged to merge. This will decrease overhead costs on the part of insurance providers, and also make administration easier from the side of hospitals and clinics for having fewer companies to deal with. Easier generally equates to cheaper. It will also allow for more standardization of processes, which again makes things easier for hospitals and clinics, and thus cheaper.
2) Health insurance should be privately purchased, not part of a payment package. The excess of spending most likely stems from a lack of market feedback. Part of the cause of this is likely because the individual payer doesn’t personally write a check each month.
3) Health insurance should market itself solely based on expected years of increased longevity for each plan they offer. Similarly, our goal is to increase market feedback and so decrease the willingness of people to give excess money to health providers.
4) Patents on pharmaceutical-related research should be extended to last 50-60 or however many years, to allow research costs to be earned back.
5) Medical malpractice rewards should be capped at reasonable values.
6) Everyone should be insured.

My personal, added suggestions are these:

1) There should not be a “public option” for health care. All medical insurance should be private, even if mandatory. But, it should be optional whether you have to pay anything for this. Poor minimum levels of quality should prompt people to get properly insured with a paid package. I distrust the governments ability to maintain a financially sensible solution or compete fairly with private insurance. Just looking at the quality of life in prisons, you can see how welfare programs will continue to snowball in improved conditions for those who do not deserve it.
2) The minimum level of care should be based on the market. Enough money should be made via paid insurance packages to support those who pay nothing. A constant, set value like the minimum wage is in the end based on politics, which is liable to be based on nothing of any practical relevance. Unless a market solution can’t be created which provides some level of care for everyone, there should be no need for any further intervention or legislation to decide minimum standards.

About the American Average Lifespan
This series of posts was of course principally concerned with the cost of health care. But of course American health is below that of other nations as well.

A move towards preventative care may aid with this–which would be affected by guaranteeing universal care. But most likely the principal explanations are American poverty and American obesity.

Because the US has a larger income gap than all other comparative nations, even with guaranteed care–assuming that quality of care will be dependent on your income–we simply will have more people receiving worse care and subsequently living less long. There is no particular cure for this beyond an entirely need-based system of medicine, which personally I don’t recommend. (Most likely I will discuss the topic of American income inequality in the future at some point so I won’t go into it here.)

If you look at the OECD data (pages 3-4) you will see that the US has a higher PYLL (potential years of life lost) than other comparable nations by about a year or so. What this means is that there are entirely preventable factors leading to the early deaths of some number of the populace resulting in a lowered national average lifespan. These include smoking, obesity, drunk driving, and so on. Compared to other nations, at least one of or a conglomeration of these factors has resulted in our losing one year of life as a national average. Most likely the factor that this is is principally obesity. Improving the American diet is quite possibly the most important goal so far as matching the health of the rest of the world. Health care reform itself is unlikely to have any major effect.

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