Summary: Today we have good news for you! Many Americans fear for the government’s solvency. Predictions bankruptcy or hyperinflation litter the Internet. These fears are one facet of the carefully cultivated fears (e.g., climate, jihadists) that dominate American political discourse. Fears of the government’s solvency are, like the others, exaggerated. If we have the will to fix them, clear solutions abound — proven by our peers.
“If something cannot go on forever, it will stop.”
— “Problems and Not-Problems of the American Economy”, Herbert Stein (economist), The AEI Economist (of the American Enterprise Institute), June 1989
Contents
- Lies about the government’s liability.
- The most important graph about America.
- About US life expectancy.
- How much do our peers spend for health care?
- Who pays the bills for health care?
- Our dysfunctional health care: we pay more for less.
- For more Information.
(1) Feeding your fears by misrepresenting the government’s liability
We face massive medical costs as the boomers retire, a burden that comprises the greater part of the Federal government’s liabilities (obligations for future spending). Unpayable liabilities, used to terrorize Americans into cutting back vital parts of the social safety net (to maintain multi-generational low tax rates on the rich).
Estimates of the Federal government’s major liabilities, from the widely cited Debt Clock website (there are a wide range of estimates):
- $012.3 — Public Debt (from the US Treasury).
- $016.7 — Social Security liability.
- $110.1 — Medicare liability.
“The Challenge of Rising Health Care Costs — A View from the Congressional Budget Office“, Peter R. Orszag and Philip Ellis (Director and Senior Analyst of the CBO), New England Journal of Medicine, 1 November 2007 (gated) — Opening:
The long-term fiscal condition of the United States has been largely misdiagnosed. Despite all the attention paid to demographic challenges, such as the coming retirement of the baby-boom generation, our country’s financial health will in fact be determined primarily by the growth rate of per capita health care costs.
We need not fear these liabilities. The actuaries of the Social Security Administration show that minor reforms can fund it. The Medicare liability could be lethal to the government’s solvency. But all of our peers have health care systems more cost-effective than ours. Even gradual reform can make much of the Medicare liability disappear. Deep reforms could eliminate most of it.
A substantial reform of our health care system could reduce the government’s total liabilities to easily managed levels. Reducing health care costs by 1/4 is roughly equivalent to eliminating the entire public debt AND social security liability. And the US would still have the highest dollar spending per capital of any OECD nation.
(2) The most important graph about America
See this graphic from OECD’s Health at a Glance 2013, which has a wealth of information comparing our health care system to that of our peers. We spend roughly $2,000 per capita more on health care than our peers, and have roughly similar health care outcomes — and lower life expectancy at birth. We tremble in fear at a problem long-ago solved by other nations (although they seek further improvements).
These costs will fall, moving us to the left on this graph (lower cost/gp). Hopefully up and left (longer life at less cost/gdp); perhaps straight and left. But no matter how great the power of the health care industry, costs will come down. There is no excuse for not moving left and up, with so many proven superior systems to learn from (the complex mish-mash of ObamaCare demonstrates our dysfunctionality).
The people in the health care sectors have benefited from the multi-generational rise in costs. However costs fall, it will hurt many of them. Now let’s look at the details of this our problem.
(3) About US life expectancy
The high US homicide rate depresses our average life expectancy at birth. We look a bit better in terms of average life expectancy at age 65. Graphic 8.2.1:
(4) How much do our peers spend for health care?
Other nations pay lot less than we do for health care.
(5) Who pays the bills for health care?
Note that the health care systems of our peers take various forms, most some kind of mixed public-private system.
(6) Our dysfunctional health care system: we pay more for less
(a) We pay more for less health
“Analyzing Whether Countries Are Equally Efficient at Improving Longevity for Men and Women“, Douglas Barthold et al, American Journal of Public Health, in press.
For a summary of study see “Expensive Healthcare Doesn’t Help Americans Live Longer” by Olga Khazan, the Atlantic, 13 December 2013 — Among developed countries, a new report says, the U.S. ranks very low in translating health dollars into longer lives — particularly for women”
(b) We pay more than anybody else for legal drugs. Although I’ve not seen research on this, it’s commonly said that the pharmaceutical industry earns roughly 3/4 of its profits in the US. No surprise as Federal law prohibits Medicare from negotiating volume discounts (as the Vet and Medicaid programs do). Graph from 7.4.1 from the OECD report:
(b) The doctors’ cartel keeps the numbers of doctors low, their compensation high, and works to restrict use of alternatives (e.g., nurse practitioners) — vs our peers. Classic monopolistic practice, working their magic to produce more income.
Fewer doctors than our peers…
…so our doctors get paid more. From “U.S. Health Care Spending: Comparison with Other OECD Countries“, Congressional Research Service, 17 September 2007:
Other research about medical compensation:
- The Remuneration of General Practitioners and Specialists in 14 OECD Countries: What Are the Factors Influencing Variations Across Countries?, OECD, 18 December 2008
- “The Top 1%: Executives, Doctors and Bankers“, New York Times, 17 October 2011
- “Why doctors complain: A history of physician income“, Dr Richard Patterson, KevinMD, 2 September 2012
- “America’s Overpaid Doctors“, Matthew Yglesias, Slate, 25 October 2013 — “Time’s long investigation of American health care prices missed one thing: We pay our doctors way too much.”
(6) For More Information
(a) Articles about our future liabilities:
- A clear, deep look at this subject: “Health Care and the Budget: Issues and Challenges for Reform“, Statement of Peter R. Orszag (Director, CBO) before the Senate Committee on the Budget, 21 June 2007
- The introduction to high US health care costs: “Bitter Pill: Why Medical Bills Are Killing Us How outrageous pricing and egregious profits are destroying our health care“, Steven Brill, TIME, 4 March 2013
- “Does the United States have $128 trillion in unfunded liabilities?“, Glenn Kessler, blog of the Washington Post, 23 October 23 2013
(b) Posts about health care:
- Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime., 14 August 2009
- Hidden truths about American health care, 19 January 2010
- A note about practical propaganda, 22 March 2010
- About the political significance of the conservatives’ health care propaganda, 23 March 2010
- The core truth about our health care system, 3 April 2010
- Affordable Care Act down the mindshaft: asking what it reveals about us, 18 July 2012
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Thanks for posting this FM. The comparative data on doctors’ salaries was new to me. Very useful post.
Greer,
Thanks for the feedback. I have added links to section 6 with more information about doctors’ incomes.
One way to address heath care costs is medical tourism, traveling abroad to receive heathcare. Here are statistics on cost savings:
http://www.patientsbeyondborders.com/medical-tourism-statistics-facts
Quality remains uncertain but can be quite good.
In short, the American healthcare system is much like the American auto industry in the 1960’s; while medical tourism is much like the Japanese auto industry then was.
Duncn,
“In short, the American healthcare system is much like the American auto industry in the 1960′s; while medical tourism is much like the Japanese auto industry then was.”
That is quite scary. I mentioned the effect on workers and shareholders of the inevitable rationalization of health care, but glossed over it. Not going to be pretty.
Scary or not, the American healthcare system revels in its own complexity, shows no sign of reforming itself, and – given “the way things work in Washington” – federal reform is not very promising.
Duncan,
“federal reform is not very promising.”
We can only guess at the future, but I’ll take the over on your bet. The big Federal plans in aggregate will become an unaffordable monster without reform: Tricare, civil service, Medicare, Medicaid.
Therefore change will come. That is the point of the Stein quote that starts this post.
Change should come but will not until the medical system has something to loose.
And if you can point to some other hammer besides medical tourism with which to bludgeon it, I would sincerely be interested.
But I have had thirty odd years experience of phoney baloney; so I’ll keep banging the medical tourism drum until and unless this alternative actually materializes and starts producing results.
Duncan,
“Change should come but will not until the medical system has something to loose.”
I disagree. Change will come because the health care sector’s rent-seeking (to use economists’ jargon) has become intolerable by those paying the bills — corporations and governments.
No matter how powerful special interests appear, they are vulnerable to change of policy by the people and institutions paying them.
More supporting information here:
“The medical cartel: Why are M.D. salaries so high?” Startling fact: America today has fewer medical schools than in 1965. When I point this fact out on various forums, deluded commenters retort: “Medical schools are ungodly expensive,” which obviously explains nothing, since stealth B2 bombers and nuclear aircraft carriers are also ungodly expensive at 2 billion dollars a pop, yet America seems to have no problem affording them. Yet another example of the rampant self-delusion FM remarks upon in his previous post.
“Experts Warn of Medical Industry Cartels’ Power,” San Francisco Examiner, 21 February 2010. Among the more obscene examples of greed cited in this article: $40 disposable plastic surgical implements which get billed by hospitals for $1200 each. In another remarkable example, one doctors’ group which advertises prices 70% lower than competing doctors is unable to get any business from Blue Cross because of sweetheart contracts and exclusivity agreements with hospitals and insurers.
“The hidden public-private cartel that sets health care prices,” Slate magazine online, 2 September 2009.
“Journal of the American Medical Association says doctors should stop accepting bribes from drug companies,” Natural News, 1 March 2006.
“GlaxoSmithKline fined $3bn after bribing doctors to increase drugs sales,” TheGuardian, 3 July 2012.
“21 graphs that show America’s health care prices are ludicrous,” Ezra Klein blog, 26 March 2013.
These high prices for health care would be somewhat excusable if American doctors were competent and knowledgeable, but the reality remains that studies show American doctors persist in prescribing treatments that don’t work despite overwhelming evidence that they’re ineffective.
Source: “Believing in Treatments That Don’t Work,” The New York Times, 2 April 2009.
And on and on. Examples of such headlines could be multiplied without limit, and when I cite these documented facts in online forums to people who debate how to reduce U.S. health care costs, the result is inevitably a torrent of abuse and name-calling together with the old saw “doctors work hard and deserve to get paid.” Ditch diggers also work hard and deserve to get paid. But we don’t pay ditch diggers $230,000 a year on average, and there’s no reason why doctors in America should get paid $230,000 on average. This logic fails to penetrate the intense brainwashing induced by cartels like the AMA, of course, just as suggestions that America should stop fighting endless unwinnable foreign wars as a way to reduce the unsustainable cost of the U.S. military get ridiculed or showered with envenomed verbal abuse due to the intense brainwashing induced by Hollywood movies etc. (Hollywood films and TV shows now depict approximately one major 9/11-size attack per week on average, whereas the reality remains that there have been no 9/11-size attacks since 2001. None: zero, zip, nada, diddly, bupkiss.)
The explanation for sky-high U.S. health care costs is straightforward: bribes, corruption, nondisclosure agreements, restraint of trade, anti-competitive cartels, and sweetheart contracts that lock in medical suppliers and hospitals and doctors and imaging clinics into an impenetrable network of self-dealing crony-capitalism contracts.
Thomas,
Thanks for the references.
They strike a somewhat more negative tone that I was seeking in my “good news” post. On the other hand, my motto has always been “never accept the blindfold”. Always get the facts, no matter how dark.
Perhaps this information will boost the pressure for reform.
“Expensive Healthcare Doesn’t Help Americans Live Longer” by Olga Khazan, the Atlantic, 13 December 2013 — Among developed countries, a new report says, the U.S. ranks very low in translating health dollars into longer lives — particularly for women”
Opening: