How Should Americans' Health Care be Paid For?

[RonBoyd]

Wait a second. GSA buys 50,000 cars a year and gets better prices than anyone in the universe. In multiple competitions over the years no private sector company could touch the US fleet costs. Federal airfare is as cheap as any big corporation and has no penalty for change in flights.

And $700 toilet seats.

 

[donheff]

And $700 toilet seats.

Yeah and $20 ice cube trays. There is plenty of waste and corruption in government contracting (keep in mind the corruption is on both sides of the deal). There is just as much corruption in private to private sector contracting. Probably a lot more since most businesses don't have IGs sniffing around their every action. As for those toilet seats, if you remember that was a bit of a bogus sound bite. In actuality, it was not a toilet seat. It was a molded fiberglass cover for the sanitary tank on a P-3 with the toilet seat molded into the cover. Expensive? I don't know. But comparable to the item you pick up at the hardware store? Hardly.

 

[samclem]

Wait a second. GSA buys 50,000 cars a year and gets better prices than anyone in the universe. In multiple competitions over the years no private sector company could touch the US fleet costs. Federal airfare is as cheap as any big corporation and has no penalty for change in flights.

The government airfare/city-pair/etc thing is crazy. Yes, they get fully refundable/adjustable tickets, but the price they pay is often twice what I pay (as a contractor) to accomplish the same travel, and I often have to buy tickets late. Still, I'll grant that it is hard to make a head-to-head comparison because they are buying a different (wasteful, IMO) version of the product, and the government program is supporting other things (inducing carriers to participate in CRAF, etc) totally unrelated to the the actual travel by a person. Which, I would guess, is exactly what will happen with health care.

 

[RonBoyd]

In actuality, it was not a toilet seat. It was a molded fiberglass cover for the sanitary tank on a P-3 with the toilet seat molded into the cover. Expensive? I don't know. But comparable to the item you pick up at the hardware store? Hardly.

Yeah, I know. I was on my 1st cup coffee and my Brain Fuzz only gave me that to work with.

Doggoneit, now I've forgotten what point I was trying to make... maybe it was, "It ain't necessarily so." If it was, you had already made it so I was (am) agreeing with you.

 

[donheff]

The government airfare/city-pair/etc thing is crazy. Yes, they get fully refundable/adjustable tickets, but the price they pay is often twice what I pay (as a contractor) to accomplish the same travel, and I often have to buy tickets late.

Yeah, I have to agree it is crazy. I have seen the national cost comparisons and the argument is it is a good overall deal for the government but at times it was a king size PITA. I can validate your contractor experience since I have flown to locations where contractors flying with me took different flights and paid way less than me. On the other hand I can remember more situations where we paid much more to fly our contractors to locations where the gov rate would have been far better. The Feds can't use the government rates for contractors flying on government business for a variety of reasons.

 

[Independent]

The US government buys more commercial vehicles than any private business, and they do not get a good price.

Wait a second. GSA buys 50,000 cars a year and gets better prices than anyone in the universe.

So, which is it? I don't know. Does the gov't use its size to get pretty good prices on cars, or is it woefully inefficient and paying too much? Does anyone have any additional facts?

 

[M Paquette]

Wait a second. GSA buys 50,000 cars a year and gets better prices than anyone in the universe. In multiple competitions over the years no private sector company could touch the US fleet costs. Federal airfare is as cheap as any big corporation and has no penalty for change in flights.

Yeah, maybe they get a good deal on cars, but the gummint pays full price for all those Medicare pharmaceuticals. Heck, they don't even try to dicker. That's the sort of inefficiency that Congress should be investigating. Maybe hold some hearings and find out who's responsible for giving away so much taxpayer money.

 

[donheff]

So, which is it? I don't know. Does the gov't use its size to get pretty good prices on cars, or is it woefully inefficient and paying too much? Does anyone have any additional facts?

I will drop in one last opinion and the better drop out of this thread hijack since my info is 6 years old and anecdotal. Google isn't much help. I am only familiar with GSA's operations. They both manage a Fleet (GSA owned vehicles that other agencies use) and purchase vehicles on behalf of other agencies who then own those vehicles. In my time there studies of the GSA Fleet operation showed them as very cost effective. The easily retained internal operations through at least two contracting out efforts during periods when IMHO the contracting out decks were stacked in favor of the private sector (lots of room for argument here). GAO reports on Federal fleet operations nevertheless always found ways to improve efficiency -- but we were always far ahead of other Federal fleet operators.

I am not knowledgeable of formal cost comparisons on auto purchases although I used to see and marvel at the prices (my office managed the IT systems for them). The auto buying operation always bragged that they had the best prices on the planet and those assertions were never challenged at management reviews but still,....anecdotal evidence.

Over the years Congress made most of GSA's services optional to let other agencies compete. But they didn't touch vehicles purchases. GSA remains a mandatory source for other Federal agencies who want to buy vehicles. To the best of my recollection, they remained a mandatory source because their prices were unbeatable and the view was that balkanizing the purchases would reduce GSA's competitive advantage.

 

[FinanceDude]

I will drop in one last opinion and the better drop out of this thread hijack since my info is 6 years old and anecdotal. Google isn't much help. I am only familiar with GSA's operations. They both manage a Fleet (GSA owned vehicles that other agencies use) and purchase vehicles on behalf of other agencies who then own those vehicles. In my time there studies of the GSA Fleet operation showed them as very cost effective. The easily retained internal operations through at least two contracting out efforts during periods when IMHO the contracting out decks were stacked in favor of the private sector (lots of room for argument here). GAO reports on Federal fleet operations nevertheless always found ways to improve efficiency -- but we were always far ahead of other Federal fleet operators.

I am not knowledgeable of formal cost comparisons on auto purchases although I used to see and marvel at the prices (my office managed the IT systems for them). The auto buying operation always bragged that they had the best prices on the planet and those assertions were never challenged at management reviews but still,....anecdotal evidence.

Over the years Congress made most of GSA's services optional to let other agencies compete. But they didn't touch vehicles purchases. GSA remains a mandatory source for other Federal agencies who want to buy vehicles. To the best of my recollection, they remained a mandatory source because their prices were unbeatable and the view was that balkanizing the purchases would reduce GSA's competitive advantage.

Also, the GSA has the IRS backing them up, so they BETTER get good deals...........

 

[donheff]

Also, the GSA has the IRS backing them up, so they BETTER get good deals...........

Yeah - they are tax free. But that was accounted for in the contracting out price comparisons.

 

[Independent]

I will drop in one last opinion and the better drop out of this thread hijack since my info is 6 years old and anecdotal. Google isn't much help. I am only familiar with GSA's operations. They both manage a Fleet (GSA owned vehicles that other agencies use) and purchase vehicles on behalf of other agencies who then own those vehicles. In my time there studies of the GSA Fleet operation showed them as very cost effective. The easily retained internal operations through at least two contracting out efforts during periods when IMHO the contracting out decks were stacked in favor of the private sector (lots of room for argument here). GAO reports on Federal fleet operations nevertheless always found ways to improve efficiency -- but we were always far ahead of other Federal fleet operators.

I am not knowledgeable of formal cost comparisons on auto purchases although I used to see and marvel at the prices (my office managed the IT systems for them). The auto buying operation always bragged that they had the best prices on the planet and those assertions were never challenged at management reviews but still,....anecdotal evidence.

Over the years Congress made most of GSA's services optional to let other agencies compete. But they didn't touch vehicles purchases. GSA remains a mandatory source for other Federal agencies who want to buy vehicles. To the best of my recollection, they remained a mandatory source because their prices were unbeatable and the view was that balkanizing the purchases would reduce GSA's competitive advantage.

This may be 6 years old, but it looks like pretty good information to me.

I'll agree with MP that the bigger money is in drugs. I think the comparison is interesting.

 

[M Paquette]

I'll agree with MP that the bigger money is in drugs. I think the comparison is interesting.

Medicare Part D, the prescription drug benefit, has a FY 2010 budget of $68,000,000,000 (68 billion dollars). Unlike the VA or military programs, the government is by law not permitted to negotiate prices on drugs purchased with this 68 billion dollars. In addition, Part D drugs are exempt from "best price" rebate requirements mandated by the state Medicaid programs, which run around 15% of list price in most states.

There is the possibility that in the future, the 81 various private providers of Medicare Part D benefits may collapse or merge into a handful of larger surviving companies, and if most of these are not under the control of various pharma manufacturers, then they may be in a position to negotiate better prices and perhaps pass some of the savings along to the government.

Or not.

 

[Independent]

I don't, but this might help.

Health Insurance Industry's Profit Margins Rank #86 - Seeking Alpha

As the table above of Profit Margins by Industry shows (click to enlarge, data here for the most recent quarter), the industry "Health Care Plans" ranks #86 by profit margin (profits/revenue) at 3.3%.

Total private insurer's retention is fairly hard to get a good number for. Not all insurers seem to publish this information. (Surprise, surprise, surprise...) The lobbyists at America's Health Insurance Plans (AHIP) say the medical loss ratio (your benefits to premiums ratio) is 87%. Reed Abelson in the New York Times reports that in 2008 large employer plans had a ratio of 84%, small employer plans had a ratio of 80%, and individual plans had a ratio of 74%. The US Senate collected numbers that showed some plans with loss ratios at 66 cents on each dollar of premiums going to doctor and hospital bills.

Thanks for the research. I was replying to Modhatter who seemed to be saying that by far the biggest problem with our health care expenditures was profits/costs of private insurers, and who urged people to get the facts. I was hoping he'd post some facts, but he hasn't so far.

I think dex's number on profit/revenue is meaningful - 3.3%. And MP's numbers on total retention are also good - varying from 13% to 34%.

I went to the government's data source at: https://www.cms.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#TopOfPage Looking at the first zip file, I got "Net Cost of Private Insurance" in 2008 as $92 billion, and premiums at $783 million. That gives about 12%, which is in the ballpark with MP, though it seems a little low.

As MP points out, lots of our expenses are covered by government plans. The oft-quoted 16% of GDP is $2,339 billion. So retention by private insurers (using the $92 billion) is only 3.9% of our total expenditures or 0.6% of GDP. I'm think we've got some other big issues with health care costs besides private insurers.

 

[FinanceDude]

Thanks for the research. I was replying to Modhatter who seemed to be saying that by far the biggest problem with our health care expenditures was profits/costs of private insurers, and who urged people to get the facts. I was hoping he'd post some facts, but he hasn't so far.

I think dex's number on profit/revenue is meaningful - 3.3%. And MP's numbers on total retention are also good - varying from 13% to 34%.

I went to the government's data source at: https://www.cms.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#TopOfPage Looking at the first zip file, I got "Net Cost of Private Insurance" in 2008 as $92 billion, and premiums at $783 million. That gives about 12%, which is in the ballpark with MP, though it seems a little low.

As MP points out, lots of our expenses are covered by government plans. The oft-quoted 16% of GDP is $2,339 billion. So retention by private insurers (using the $92 billion) is only 3.9% of our total expenditures or 0.6% of GDP. I'm think we've got some other big issues with health care costs besides private insurers.

+1

 

[FIRE'd@51]

I voted for the government-provided plan for catastrophic plus supplemental. This way no health care provider should get "stuck" for a very large amount, so presumably there will be less cost-shifting. Also, presumably no one would go bankrupt because of a serious illness. Having individuals purchase supplemental or pay out of pocket for routine medical costs should help keep overall heathcare costs under control.

I guess the definition of catastrophic (i.e., the deductible) could be means-tested.

 

[FinanceDude]

I think the reason a majority of this poll voted for the choice of the tax-funded govt controlled plan is this board is skewed by being composed of retired early folks negotiating the slippery slope of covering health care from XYZ year until Medicare...........

 

[samclem]

So retention by private insurers (using the $92 billion) is only 3.9% of our total expenditures or 0.6% of GDP. I'm think we've got some other big issues with health care costs besides private insurers.

Looking at the profits of private insurers, the admin cost of govt insurance (both the govt costs and the costs these plans force onto medical care providers) and "retention" by private insurers is potentially useful, but we should be careful not to miss other, far bigger "costs" that this approach misses. Any fee-for-service approach has the potential to drive costs higher because providers will have reason to order more services (tests, procedures, etc). And, if the patient has no/little inducement to shop for a better price (or it's impractical because the fees charged by provides are so opaque), then one important "braking" mechanism is eliminated. An insurance company might have rock-bottom margins, but if every patient with a sprained ankle gets a $500 MRI, three office visits with an MD, and 10 weeks of physical therapy, then we're probably not doing a lot to control medical costs.

Of course, with "capitated" plans (where the health care providers receive a fixed fee per patient per year), the inducements are just the opposite--providers/insurers have incentives to skimp on care to make more money.

Both payment models need checks. Either payment model can work within a market-based construct, which should reduce overall costs and improve quality.

 

[Independent]

Sam - This all makes sense to me until I get to your last sentence. What do you mean by "market-based construct"?

 

[Texas Proud]

Sam,

One of the problems is that healthcare is not based on, as Sam puts it, a 'market based construct'...

To be market based, it means that we have to be able to comparison shop... the current system is so far removed from this that getting there would be harder than passing the Obama bill...

And, how many of us really will comparison shop if we are not the ones paying for the service? My copay is $50... it does not matter where I go or how much they charge... it is $50... so NO comparison shopping for me on price... If I thought the service was bad, I would change...

Then there is the issue of going different places for different procedures.... once you choose a doctor, most people try and go back to that doc for everything... so they can be cheap until they get a lot of patients and then raise the price... heck, my sister's doc just did that... even though she is on Medicare, he charges $1,000 per year to be one of his exclusive patients... I think he limits his to 120 or so patients... but that is over $1 mill before he does a thing... (my sister declined to stay with him)...

Until we have to pay for everything (like food and housing), and prices become clear, then we will be in the same situation we are today....

Right now, all of this is talking about who pays for the service... very little about changing the system...

 

[FinanceDude]

Sam,

One of the problems is that healthcare is not based on, as Sam puts it, a 'market based construct'...

To be market based, it means that we have to be able to comparison shop... the current system is so far removed from this that getting there would be harder than passing the Obama bill...

And, how many of us really will comparison shop if we are not the ones paying for the service? My copay is $50... it does not matter where I go or how much they charge... it is $50... so NO comparison shopping for me on price... If I thought the service was bad, I would change...

Then there is the issue of going different places for different procedures.... once you choose a doctor, most people try and go back to that doc for everything... so they can be cheap until they get a lot of patients and then raise the price... heck, my sister's doc just did that... even though she is on Medicare, he charges $1,000 per year to be one of his exclusive patients... I think he limits his to 120 or so patients... but that is over $1 mill before he does a thing... (my sister declined to stay with him)...

Until we have to pay for everything (like food and housing), and prices become clear, then we will be in the same situation we are today....

Right now, all of this is talking about who pays for the service... very little about changing the system...

Agree 100%........

 

[samclem]

Sam - This all makes sense to me until I get to your last sentence. What do you mean by "market-based construct"?

I had in mind the type of things we associate with a competitive marketplace: Price transparency, many sellers, an incentive for buyers to seek lower prices, an incentive for sellers to attract buyers with better value (better service, lower prices), solid information for consumers regarding the relative quality of the services provided by various sellers, etc.

This is tougher to accomplish with health care than with toasters, air travel, or automobiles, especially if we want to accomplish social goals (universal coverage, etc) instead of just having people buy services that meet their individual needs through a lightly regulated marketplace. But we can get there, and there's plenty of incentive to try.

 

[samclem]

And, how many of us really will comparison shop if we are not the ones paying for the service? My copay is $50... it does not matter where I go or how much they charge... it is $50... so NO comparison shopping for me on price... If I thought the service was bad, I would change...

Yep. I agree. Things would be different if you 1) paid a percentage rather than a fixed co-pay, 2) Had easy access to the fees charged by various providers for the same service 3) Had easy access to information on the quality of the service provided by various sellers (customer reviews/satisfaction ratings, info on number of procedures performed annually by that provider, past or pending legal/professional certification actions against the provider, etc.

even though she is on Medicare, he charges $1,000 per year to be one of his exclusive patients... I think he limits his to 120 or so patients... but that is over $1 mill before he does a thing

Is that some of that funny "healthcare cost math" we see so often?

Until we have to pay for everything (like food and housing), and prices become clear, then we will be in the same situation we are today....

I don't think the consumer necessarily has to pay the entire bill to have a strong incentive to shop around. Medical care is expensive, and even a 20% stake would be more than enough to get me to search for lower prices on big-ticket items if it were made possible to get the needed information easily.

Right now, all of this is talking about who pays for the service... very little about changing the system...

But determining who pays and how they do it is key to reducing costs and even to getting universal access at a price we can afford (individually and as a nation). We've got to set up a system that lowers costs as a result of consumer pressure, because doing it the other way (price caps from above) is certain to produce scarcity.

As a practical matter, it's probably most important to facilitate consumer choice/competition between medical insurers/HMOs, and let these companies figure out how to improve efficiencies in care delivery. The government has an important role to play in facilitating this competition.

 

[Independent]

Sam - I'd like to have some of the information you're talking about. I've thought it would be good to have providers post their rates, say for procedures that generate least 80% of their revenue. I would want the numbers in a searchable database so I can quickly compare providers. I know they discount rates for various insurers, so that adds a complication.

Then add number of each procedure done (both per year and lifetime for doctors?), board certifications, and anything on license actions. But that leaves out a lot of important quality information.

Note that neither of these will happen without the government getting involved and forcing providers to provide the information. Lots of "free market" fans won't like that.

But people won't use this unless they've got skin in the game. In fact, they might just pick the most expensive provider on the theory that must be the best.

So then you have to make sure that everyone has high deductibles and coinsurance rates. How high? My wife's "routine" breast cancer treatments cost close to $100k in one year. How many people can handle meaningful coinsurance on that kind of bill? This requires more government involvement, and now the government is telling individuals they can't buy insurance that they want, good luck with that.

But this still doesn't impact much of our problem. If I go to the doctor with a pain and he/she recommends an MRI, how do I know if that's really cost effective advice? It seems that one of the biggest variables in medical cost is how quickly doctors order additional tests and procedures in situations where there's no hard and fast rule. Have you read this: McAllen, Texas and the high cost of health care : The New Yorker ? I don't have a market solution for that.

 

[samclem]

But this still doesn't impact much of our problem. If I go to the doctor with a pain and he/she recommends an MRI, how do I know if that's really cost effective advice? It seems that one of the biggest variables in medical cost is how quickly doctors order additional tests and procedures in situations where there's no hard and fast rule. Have you read this: McAllen, Texas and the high cost of health care : The New Yorker ? I don't have a market solution for that.

Luckily, the market does have a solution for the McAllen situation.

The docs in McAllen are ordering all these extra services for Medicaid patients because there's no effective oversight of what they are doing. A very interesting study was released just last month looking at McAllen, and guess what: Medical costs for McAllen residents using private insurance were actually lower than in nearby El Paso.

From a report about this follow-up study:

For the under-65 population insured by Blue Cross, total spending per-member-year in McAllen, Texas, was 7 percent lower than in El Paso, Texas. By contrast, Atul Gawande’s 2009 New Yorker article, which used data from the Dartmouth Atlas of Health Care on variations in Medicare spending, showed that per capita spending in McAllen was 86 percent higher than in El Paso.

Although the new study cannot explain definitively why variations in health care spending drop off dramatically under private coverage, the authors suggest that mechanisms for utilization review and management used by private insurers could play a prominent role.

“For a number of reasons, insurers generally are reluctant to intrude on medical decision-making,” says lead study author Franzini. “But the fact that these utilization management mechanisms exist may prompt some physicians who might otherwise overuse certain services to exercise more restraint.”

So, a question for those crowing about Medicare's low administrative costs: Is it a bargain if this low amount of oversight causes a huge increase in unneeded medical care?

As you stated earlier:

. . . So retention by private insurers (using the $92 billion) is only 3.9% of our total expenditures or 0.6% of GDP. I'm think we've got some other big issues with health care costs besides private insurers.

 

[M Paquette]

Luckily, the market does have a solution for the McAllen situation.

The docs in McAllen are ordering all these extra services for Medicaid patients because there's no effective oversight of what they are doing. A very interesting study was released just last month looking at McAllen, and guess what: Medical costs for McAllen residents using private insurance were actually lower than in nearby El Paso.

From a report about this follow-up study:

So, a question for those crowing about Medicare's low administrative costs: Is it a bargain if this low amount of oversight causes a huge increase in unneeded medical care?

I suspect what this means is that selected groups of people have discovered ways to systematically game a system. I would not be in the least bit surprised to find that these firms also contribute to lobbies fighting to reduce government interference in their businesses; specifically, the lobbyists working to block the creation of the OIG Medicare Inspector and Auditor positions.

There are a few auditors, and they've caught some of the more egregious violations such as using expired or terminated meds for Medicare Part D orders, or blatantly filing false claims. The real trick is to figure out just what one can get away with and justify as a valid procedure, test, or medically necessary device.