Economics of Health 101

I’m live blogging this session of Health Journalism 2008, with panelists including:

I’ll possibly have some video of Dr. Fronstin later; he gave a good overview of the basics of private health insurance.

Dr. Wilensky says the basic problem is that health spending is growing by an average of 2.5 percent more than the rest of the economy. Over the long term, she says, Medicare growth approximates growth for all health care. If overall spending continues to increase at the rate it has, and if Medicare essentially mirrors that growth rate, we will see Medicare, Medicaid and Social Security consume all of the federal government’s current revenues before 2030. She recommended what she calls some sensible next steps for Medicare:

  • Change/realign financial incentives of providers (also make patients more cost/quality conscious)
  • Improve info on comparative effeciveness
  • Introduce more competition into the system
  • Increase age for full benefits for people who don’t have health-related disabilities. Introduce fiscal policies that give people incentives to stay in the labor force.
  • Income-relate more of benefits and premiums

One thing I don’t think she fully accounts for is the cost-shifting from Medicare to private insurance. The gap in growth between Medicare and private insurance would be much greater if the bill wasn’t being pushed onto the private insurance payers.

Paul Ginsburg’s presentation will be available on his organization’s web site. He says premiums have increased by 114 percent from 1999-2007, an average of 10 percent per year, and this would have been even higher if not for benefit buy-downs (making the benefit packages less rich, so people are paying more for less.)

He sees the following as driving increased costs:

  • Rising population incomes
  • Developments in medical technology
  • Less healthy lifestyles – particularly obesity
  • Only small productivity gains in delivery of services
  • New patterns of competiton in health care
  • Aging of the population

He doesn’t include malpractice costs and state benefit mandates as factors dramatically increasing costs. He says they may contribute to high costs, but they aren’t driving the massive increases. Reforms may be beneficial in both of these areas, but he doesn’t see them as crucial.

More effective technologies may provide benefits, but they tend to be over-used; for example people going to Vioxx when they don’t really need it; another drug would have been just as good. That’s where both he and Dr. Wilensky agreed more research on comparative effectiveness and cost-effectiveness is needed.

One item that makes Ginsburg’s list but isn’t seen on many is lack of productivity gains that we have seen elsewhere in the economy. The fundamental problem is misaligned incentives, with payments to providers focusing on costs per unit. This is a problem the Mayo Clinic Health Policy Center has also addressed, with its call to pay for value based on quality outcomes and long-term costs, not just micromanaging the costs of a particular procedure.

Dr. Drass focused on labor shortages and how that will make the cost problems even worse than what we see projected today, particularly with RN shortages. For example, Georgetown needs to pay $72/hour for some skilled specialty nurses. As baby boomers retire, the situation will get even worse. Dr. Drass mentioned the cost shifting problem, too, which explains a lot of the rise in private health insurance premiums.

The moderator recommended and the Dartmouth Atlas as resources.

Carol Gentry, who runs a non-profit health news service, asked about the Certificate of Need process. Dr. Wilensky says there is no evidence that CON does anything but delay spending. She says specialty cardiology and orthopedic hospitals are springing up because reimbursement is “out of whack” for those specialties. She suggests that instead of the CON limitations, the reimbursement for these less-than-full-service hospitals should be lower.

Overall, this was a good introduction to health care economics that lived up to its billing as a 101 course. More importantly for the journalists attending, I think, it gave them some sources for further exploration and subject expert sources for future stories.

Author: Lee Aase

Husband of one, father of six, grandfather of 15. Chancellor Emeritus, SMUG. Emeritus staff of Mayo Clinic. Founder of HELPcare and Administrator for HELPcare Clinic.

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