Cafe Hayek - Latest Comments in Does Fee-for-Service Explain Rising Health-Care Costs?

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John — Tue, 30 Nov 1999 02:00:00 -0000

Dewey,

You're right in that insurance is whatever the contract says it is.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John — Tue, 30 Nov 1999 02:00:00 -0000

Please provide a source.

I would but it's dead.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John Dewey — Tue, 30 Nov 1999 02:00:00 -0000

John: "No, semantics."

Please provide a source.

Here's the definitions I'm familiar with:

From Merriam Webster online:

"coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril"

Nothing there says that says the contingency need be rare or unlikely.

From Princeton's WordNetWeb:

"promise of reimbursement in the case of loss; paid to people or companies so concerned about hazards that they have made prepayments to an insurance company"

Nothing in that definition indicates the loss or hazard need be rare or unlikely.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John — Tue, 30 Nov 1999 02:00:00 -0000

Why? Because that's what you believe?

No, semantics.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John Dewey — Tue, 30 Nov 1999 02:00:00 -0000

sam grove: "Insurance is supposed to provide coverage for the rare and unlikely."

Why? Because that's what you believe?

Why cannot insurance provide subscription medical coverage? If subscription medical coverage is what consumers want - and if they are willing to pay for it - what is the problem?

For me - and I suspect for many other consumers - there is great value in having a fixed cost for medical care. We'll let the insurance companies figure out how to price it.

Your values may be different. If so, I recommend that you pursue a different arrangement. But please do not try to restrict my choices.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John — Tue, 30 Nov 1999 02:00:00 -0000

Looks like Mr Grove finally figured out that the only difference between government and organized crime is the number of guns.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John Dewey — Tue, 30 Nov 1999 02:00:00 -0000

S Andrews: "I have not seen religious charities raising money to support poor in need of medical treatment."

Perhaps government medical care programs have reduced the need for charity support of medical care. But i think it still exists.

I have read about the Catholic Church raising money for health clinics in poor Hispanic neighborhoods.

The Methodist Church and other religions have supported missionaries who provided education and medical care. My uncle and aunt were such missionaries in Africa back in the early 1960's.

Approximately 60 percent on acute care general hospitals in the U.S. are non-profits. I can't find recent data, but a decade ago about a third of the non-profits were controlled by organized religions. In order to retain tax-exempt non profit status, hospitals must provide community benefits such as care for the indigent.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

muirgeo — Tue, 30 Nov 1999 02:00:00 -0000

An intractable problem.

Posted by: Arthor Bearing

Yeah explaining how you are going to let people who are denied insurance or can't afford care just die in the streets is a bit of a problem. But yeah the rest of the argument is sound logic.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

muirgeo — Tue, 30 Nov 1999 02:00:00 -0000

"In either case, some people will be denied care. I'd prefer that the impersonal forces of the market direct such decisions than to have them made by bureaucrats."

So people who can't pay just get no treatment and die?

Your argument is a little like saying the cost of national defense would go down if each person just was responsible for their own defense.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John Dewey — Tue, 30 Nov 1999 02:00:00 -0000

pingry: "my point is that it is better to pay for things directly, rather than indirectly via market distortions."

So you say. I see it diferently. What does "better" mean?

Sorry, but I don't see in the purchase and use of private health insurance the market distortions you refer to. Health insurers have included the expected use of health care into the price they offer. Those insurers are making a profit. Consumers of health insurance are receiving the service they purchased.

The upward spiral you refer to is caused not by a third party system but rather by government interference in the market:

- all costs of Medicare and Medicaid are not paid for by the consumers who use those insurance plans;

- consumers of health insurance are not permitted to purchase health insurance from other states;

- state governments mandate coverage which health insurance consumers might not desire to pay for.

The problem is not insurance. The problem is that markets are not free.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

Pingry — Tue, 30 Nov 1999 02:00:00 -0000

John Dewey:

Of course it is good that "Health insurance companies compete for the dollars of large employers," and all else aside, it is better to have more competition, not less.

The real issue is that the marginal costs of producing and consuming healthcare exceed the marginal benefits because those with insurance are not facing the full cost of their own decisions, that is, some of the costs, spillover to others, and prices tend to rise higher than they would otherwise, irrespective of the structure of the output market for health insurance.

Now, a qualification is in order here. Technically, these are not the typical externalities which economists talk about because they are, for the most part, reflected in the price.

Instead, economists would recognize them as pecuniary externalities, but nevertheless, there is an overallocation of scarce resources to healthcare, and this has led to many deleterious effects.

Accounting for spillover benefits and improved quality in healthcare goods and services, we see that the demand for healthcare is increasing faster than the supply, very much due to the third party payer system.

But then you write: "Are they controlling costs as much as we wish? Apparently so, because we keep paying them for health insurance."

Again, the issue is that we certainly are paying them for health insurance, just not directly, which gets to the crux of the matter.

If we paid directly, without a third party system, then it would be allocatively efficient. But instead, someone else is paying a large portion of the bill for us (among other things), which insulates us from equating costs and benefits at the margin, and so we typically consume far too much.

But, of course, this is not a free lunch. For example, if employers wish to continue provide their employees the same healthcare insurance as part of their salary despite the rise in healthcare costs from this tragedy of the healthcare commons, then all else aside, they must necessarily lower the growth rate of wages.

And that is a big way in which we're "paying" for health insurance, albeit in an indirect manner as the upward spiral continues.

So, my point is that it is better to pay for things directly, rather than indirectly via market distortions.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John Dewey — Tue, 30 Nov 1999 02:00:00 -0000

Dr T: "The problem has been that nearly everyone has full health coverage and doesn't directly pay for medical services."

No. We pay for health insurance. How is that a problem?

Dr T: "It also promulgated the idea that everyone is owed platinum-plated healthcare"

If we pay for a health insurance contract that specifies "platinum-plated healthcare", then that is what we are owed, isn't it?

Would you deny me the right, Dr T, to pay for and be owed "platinum-plated healthcare'?

Dr T: "Much of the "waste" in health care is due to the attitude of "so what, the insurance company will pay for it."

I'm paying for the health care insurance I desire. Health insurance companies are making decent profits. Health care providers are making decent earmnings. Why do you see this as a waste?

The problem, as I see it, is that too many people who do not pay for "platinum-plated healthcare" believe they are entitled to it as well.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

Pingry — Tue, 30 Nov 1999 02:00:00 -0000

As I have said before in the comments section here at Cafe Hayek, healthcare spending in the U.S. is ridiculously out of control because of the excessive development and use of medical technology brought about by the third party payer system.

The third party payer system has little, if any way to control costs because the incentive to equate costs with benefits at the margin is nonexistent.

Any use of medical technology which yields even a small marginal benefit will likely get used, irrespective of the marginal cost to society, because the marginal cost to the individual is small.

That is, the third party payer system is really just a massive form of the tragedy of the commons created by government.

Thus, the third party payer system has created incentives to develop and use a far greater amount of medical technology than would otherwise occur if marginal costs would be higher.

Insurance, both public and private, has basically encouraged extensive research into and development of medical technology through their willingness to pay for new treatments irrespective of price and number of patients, and the result has been a bloated healthcare sector which is a much larger fraction of GDP than in other OECD countries ***

Therefore, after adjusting for the spillover benefits, we are still consuming healthcare at the point in which marginal cost greatly exceeds the marginal benefit, resulting in allocative inefficiency.

The production and consumption of healthcare, at the margin, is worth less than the alternative goods and services that otherwise could have been produced, and society incurs a very large, real economic loss.

And, of course, the fee-for-service payment system (along with the medical belief of the "best treatment available") aggravates this problem.

So, if our healthcare sector is allocatively inefficient, then we should reduce the amount of healthcare relative to GDP (and much evidence suggests that spending could be reduced without adversely affecting health outcomes) to the point in which costs and benefits at the margin are equal.

The best way (although not particularly practical, given the vested interests) is to simply eradicate the third party payer system.

***And as a side note, while I do not advocate nationalized care, many people have claimed that while taxes in these countries are higher to fund such a universal, nationalized system, it is almost as if our taxes are similarly high to fund our healthcare system because the rising costs of healthcare has lead to slower wage growth, in effect, "taxing" employees, particularly healthy ones who are personally responsible for maintaining a healthy lifestyle while America devolves into obesity and disease.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

Dr. T — Tue, 30 Nov 1999 02:00:00 -0000

John Dewey said: "So why do you and Arnold Kling and Russell Roberts and Don Boudreaux feel I should not have full health coverage insurance? Or do I misunderstand your argument?"

Full health care coverage, in and of itself, is not wrong. The problem has been that nearly everyone has full health coverage and doesn't directly pay for medical services. This has allowed doctors and hospitals to rapidly raise charges. It also promulgated the idea that everyone is owed platinum-plated healthcare: minor injuries get MRI scans, a questionable problem gets assessed with three dozen lab tests, a dying person gets $30,000 of care in his final few days, etc. Much of the "waste" in health care is due to the attitude of "so what, the insurance company will pay for it."

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

Dr. T — Tue, 30 Nov 1999 02:00:00 -0000

TrUmPiT said: "Along with the hippocratic oath, the requirement to serve the poor at no, or small charge should be part of their duty and pledge."

It just amazes me that people have the gall to tell physicians to donate time and supplies to caring for the poor. Do grocers give 10% of their food to the poor? Do clothing stores give 10% of their clothes? How about book stores, hardware stores, plumbers, tax return preparers, trash haulers, car dealers? Why is it that just one class of professionals is expected to donate time and goods to the poor?

Instead of expecting doctors to provide free care for the poor, how about expecting that family, friends, and neighbors collect money so the poor patient can go to a doctor and pay for the visit.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John Dewey — Tue, 30 Nov 1999 02:00:00 -0000

Pingry: "The third party payer system has little, if any way to control costs "

I do not understand why so many people believe this and promote this idea.

Health insurance companies compete for the dollars of large employers. These insurance companies must limit the premiums they charge those employers. In order to earn a profit, they must - and they do - control their payments to health care providers.

Are they controlling costs as much as we wish? Apparently so, because we keep paying them for health insurance.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John Dewey — Tue, 30 Nov 1999 02:00:00 -0000

S Andrews: "so long as the treatment is the same for someone buying it though the employer and someone else buying it directly from the insurer."

I have no problem with allowing a tax deduction for direct purchases of health insurance.

S Andrews: "people should be given an option to opt out of employer provided healthcare."

I think some employers offer that option.

IMO, the employer should have the freedom to offer whatever combination of salary and benefits he deems appropriate. Through 100% participation, the employer can likely lower the health insurance costs for all employees. I think the employer should be free to make that a condition of employment.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

S Andrews — Tue, 30 Nov 1999 02:00:00 -0000

I'm not so sure Americans are using insurance for the common cold.

If I want full health coverage insurance - and I'm willing to pay for it directly or through agreement with my employer - what's the problem?

No problem, so long as the treatment is the same for someone buying it though the employer and someone else buying it directly from the insurer. Also, people should be given an option to opt out of employer provided healthcare.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

John Dewey — Tue, 30 Nov 1999 02:00:00 -0000

S Andrews: "One should consider buying insurance against catastrophic events. You don't need medical insurance for common cold. We don't use car insurance for oil changes, but we do use them in case of a collision."

I'm not so sure Americans are using insurance for the common cold.

If I want full health coverage insurance - and I'm willing to pay for it directly or through agreement with my employer - what's the problem?

The insurance company is willing to sell me that policy - either directly or through my employer. The health care providers agree to accept the terms my insurance company dictates.

So why do you and Arnold Kling and Russell Roberts and Don Boudreaux feel I should not have full health coverage insurance? Or do I misunderstand your argument?

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

S Andrews — Tue, 30 Nov 1999 02:00:00 -0000

Which is why one should consider buying insurance against catastrophic events. You don't need medical insurance for common cold. We don't use car insurance for oil changes, but we do use them in case of a collision.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

Thomas DeMeo — Tue, 30 Nov 1999 02:00:00 -0000

There are many reasons why healthcare is different from food.

The burden of paying for food is very consistent, and the increments are quite small. People are always smarter when this is the case. Medical care can often have no cost at all for long stretches, followed by massive spikes. It is inherent to human nature to struggle with these types of responsibilities. This is made worse by the fact that consumption patterns are often concurrent with disability.

You don't have to depend on expensive expertise to feed yourself if you don't want to. You can take care of as much or as little of your own food needs as you want, with little consequence.

It is also far easier to depend on others. It is relatively easy to feed the weak and infirm, making it much easier for social networks to help those in need.

There is a limit to how much food can be consumed. Technology doesn't change this much, and it continues to drive the cost of food down. Healthcare, on the other hand, continues to grow in expense, scale and importance rapidly as technology advances.

I could go on and on...

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

Babinich — Tue, 30 Nov 1999 02:00:00 -0000

TrUmPiT said: "Along with the hippocratic oath, the requirement to serve the poor at no, or small charge should be part of their duty and pledge."

TrUmpit,

What do you charge the poor when you serve them? Do you even serve them?

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

brotio — Tue, 30 Nov 1999 02:00:00 -0000

So people who can't pay just get no treatment and die? - Yasafi

Maybe they can't pay because their hypocrite doctor is making so much profit in the health care industry that he can afford to go trotting across the globe several times a year. Meanwhile, babies are dying in their mother's arms while this hypocrite, who has the knowledge that that baby needs to survive, has callously put a price on his services!

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

S Andrews — Tue, 30 Nov 1999 02:00:00 -0000

I think the employer should be free to make that a condition of employment.

I agree.

Re: Does Fee-for-Service Explain Rising Health-Care Costs?

Mr. Econotarian — Tue, 30 Nov 1999 02:00:00 -0000

According to the Congressional Research Service Report RL34175 "The U.S. Health Care Spending: Comparison with Other OECD Countries", Americans spend only 13.2% out-of-pocket for health care.

While France (7.6%) and the Netherlands (7.8%) spend less out-of-pocket, other countries with socialized medical schemes spend MORE out-of-pocket: Germany (13.3%), Ireland (13.5%), Canada (14.9%), Norway (15.7%), New Zealand (17.2%), Japan (17.3%), Switzerland (31.9%).

Source: http://wikileaks.org/leak/c...

The standard public health benefits in France and Japan tend to cover 70% (of government "negotiated" costs), with private health insurance coverage above that (France will cover you 100% in a significant health event though).