The New Republic

Correct in every detail, and very well and clearly written.

- roidubouloi

March 10, 2010 at 7:54am

How comedic. Cohn learns a new data point--that insurance company profits are less than 1% of our total health care expenditure--and then writes an article justifying why he's wasted a million barrels of ink on the topic. I take it you watched George Will bonk Robert Reich over the head with the figure only to cause Reich to sit in stunned silence wondering if it's really true. Yes it's true. JC, how about writing an article that the biggest reason that our health costs are so much higher than the EU is because the USA--the most consumer centric country in the world, home of walmarts, costco and homedepot, home of the customer is always right--visits the doctor 40-50% more than their EU counterpart. And because we all are addicted to having a brand-new modern hospital down the street with an MRI machine warmed up for us "just in case". But of course, the patient can't possibly be the cause of all this. No. It must be the insurance companies. Welcome to relying on data instead of emotions for your reasoning. You almost got there with this post.

- seattleeng

March 10, 2010 at 10:16am

No, Cohn is correct in every detail here. However, I'm a little more forgiving than he is; the problem doesn't originate with the insurance companies but rather with the role they've been asked to play by others, particularly employers and insured people. Most other forms of insurance do not act as gatekeepers. If your house catches fire, you don't phone your home insurance company and ask them to pay someone to come put out the fire. You call 911 and the fire department comes and tries to fight the fire. Then you call your home insurance company to make a claim that, if you have a decent policy, makes you whole for the losses suffered in the fire. This is a sensible arrangement whereby risk is appropriately shared and managed, and it's how most forms of insurance work. But health insurance doesn't work like that; instead, private health insurance functions exactly like centrally planned government healthcare bureaucrats in actual communist countries, except the private insurer is trying to take a cut of the action as profit. It's a system that's simply not designed to provide good service or produce good healthcare outcomes. So while it's true that private insurance is a huge problem in American healthcare, we can't "blame" insurers for failing to provide the civic goods that we expressly forbid them from providing by demanding that they play an inappropriate and inefficient role.

- rhubarbs

March 10, 2010 at 10:48am

What insufferable, and as usual uneducated, blather, seattle. You are totally immune to information of any kind, steeped and stewed as you are in your right-wingnut ideology. You don't agree with The New England Journal of Medicine that 19%-23% of our aggregate medical costs are administrative overhead directly attributable to our dysfunctional insurance system that derives profits from loss-shifting? Find some reliable data to the contrary. You don't agree that doctors in the US earn four times as much, relative to median-household income, as their French counterparts, 5.5 times average US income as compared to 3.4 times in Germany, the next highest? Find some reliable data to the contrary. As for the standard right-wing crap of blaming individuals who will ALWAYS respond in a predictable manner to the market incentives that they face, the point you have been completely unable to wrap your ideologically hidebound head around is that we cannot have price rationing and insurance at the same time. The two are completely opposite principles. As long as the service has a near-zero marginal cost, it will be over-consumed. Therefore, if we are going to have insurance, we have to ration care in some manner other than price. As healthcare is a technical matter, not one of taste, the logical way to do it is to control the provision of services by the imposition of "best medical practices" everywhere. At the same time, in the absence of market prices for care by virtue of insurance, something else has to play the role of the demand side of the market. This can only be the government. As Cohn points out, insurance companies do not have the tools or the incentives to do this unless they are placed in a structure, by regulation, that makes it unavoidable that they do so. Our healthcare costs are 55% higher than in France, the highest in Europe, with no better medical outcomes. That is a combination of administrative losses due to private health insurance, over-consumption due to private health insurance, and excessive compensation to medical providers due to private health insurance. Therefore, we can substitute public health insurance or we can "socialize" private insurance by regulation, making it play the same role as public health insurance. There is no other possibility for getting out of this mess. Of course, for the flat-earth, libertarian ignoramuses such as yourself, that is politically unacceptable. You prefer your Randian religious myths to anything that even approaches reality. Until we find the political means (coming very soon we hope!) to deal with the likes of you and your ideological bullshit, we will remain mired. The great irony is that it is the libertarian nuts who advocate ceaselessly for unfettered individual choice. When that leads to predictably bad results, they blame the individual, refusing to the last to admit that state action is sometimes necessary to achieve good outcomes in a modern economy.

- roidubouloi

March 10, 2010 at 11:06am

I concur completely with rhubarbs. Although sometimes corrupt (withholding care or compensation in the hope that insureds will either give up from exhaustion or drop dead), for the most part insurance companies are behaving completely rationally within the market and incentive structure that we allow. It is a clear case of market failure that can only be remedied by regulation -- whereby the government mandates standards of care, rates of compensation, and universal coverage -- or by the direct substitution of public insurance for private insurance. In either case, there must also be some redistribution of costs via taxation if medical care is going to be universally available regardless of ability to pay.

- roidubouloi

March 10, 2010 at 11:15am

To the SeattleEng: Sweden and Switzerland are horrible places due to all of their socialism. France is no better, and forget Canada due to the socialized medicine that kills via death panels. Somalia on the other hand has no taxes, no government intervention in the private sector, government stays off your back. No regulations at all from what I've read. It's a paradise. When are you moving to Somalia?

- tnmats

March 10, 2010 at 11:47am

So what to do to solve the problem as Seattle sees it (it's those damned people, acting in their rational self interest due to private insurance encouraging them to spend and spend)? Yell at everyone? Thats as appropriate a policy response as I've ever come across, I've got to say. UHC? That would also solve the problem, but let's accept that that's unfeasible at this point in time. What does that leave? Pretty much what's on the table right now - how ironic! Unless you have some other proposals Seattle? And please, if you're going to suggest tort reform and interstate plans, please do us the consideration of providing counter arguments to the many salient points that have been made on these pages against those ideas.

- Nari224

March 10, 2010 at 4:53pm

Nari. Why set up straw arguments? Yell at everyone is hardly the only possible (or even reasonable) counter to Seattle. What is on the table now is in large part due to what wasn't done in pushing for real health reform over the last year. what you are saying is that the US is ungovernable-- and the end of American power is rapidly ending. That may be -- especially if most voters listen to you and Seattle.

- gdbittner

March 10, 2010 at 5:30pm

Here's how engineers fix problems: You make a list of everything that you know of that will improve the situation, along with estimates of how much it will improve things. You look at the feasibility of each, and assign a cost to each. Then you put it all in order and go to work. This works for bridges that are falling down, planes that aren't flying far enough, cellphones that don't have enough battery life. This administration never made a list. They just bundled up a bunch of stuff they wanted to do based on anointed winners (drug companies) and losers (insurance companies), without regard for how much it will improve things. Then they decided to make up some boogeymen, to convince people they were "working really hard for you." And they went after them hard. And you lapped it up and carried the water for them against these boogeymen. And you stupidly never asked "Hey, if the insurance guys are such bad guys, then why aren't the drug companies bad guys too since their profits are MORE than the insurance companies? And what about the the fact that 40% of all medicare is spent on the last 6 months of life? That seems wasteful too, and very out of line with Europe???" And what about medical specialists making $500,000 but facing $200,000 in annual malpractice insurnace? How about we just knock their pay down $200,000 but shield them from malpractice?" And here in the end, the biggest boogeyman, the one that was supposed to devour us all, turns out to be almost immeasurable in our total cost structure. But of course, this was known at day one. You could have read the McKinsey report a few years back to figure this out. Don't direct your anger at me. Direct your anger at an administration that has been talking about "big changes" for 3 years now and telling you they had it "all figured out." Direct the anger at yourself for believing it. Ask yourself this: If McCain had won, and this was his health care plan, would you support it with the vigor that you are supporting this? Would Chait write article after article about how we must pass something, anything... You guys have been sold a bill of goods. You settled. You got played. You have been owned. And you helped the process at every step of the way. You were driven by feelings, not numbers. That will screw you every time.

- seattleeng

March 10, 2010 at 6:26pm

Roid writes: " The New England Journal of Medicine that 19%-23% of our aggregate medical costs are administrative overhead directly attributable to our dysfunctional insurance system that derives profits from loss-shifting?" The article you previously cited does NOT ascribe this just to insurance companies. It's profit at every level, including hospitals, drug companies, doctors, nurses, etc. You can know this by inspection: Add up all the net profits of the insurance companies and compare it to our total health care spend. It's nowhere near 20%. As Chait noted, it's less than 1%.

- seattleeng

March 10, 2010 at 6:31pm

Roid writes: "You don't agree that doctors in the US earn four times as much, relative to median-household income, as their French counterparts, 5.5 times average US income as compared to 3.4 times in Germany, the next highest? Find some reliable data to the contrary." I do agree with that. France pays doctors less than we pay fork lift drivers at GM. That not hyperbole. That's a fact. If you want to whack our doctors AND every other worker int he country to get to parity with France, then we can talk about that. if you want to see the GM forklift driver see his wages + benefits drop from $70K/year to $20K/year, then let's discuss. But if all you want to do is whack a US doctors average pay from $150K to $55K to match France's system, and let the government accountant still earn $80K/year, then that stupid. US and France wage comparison is apples to oranges. And US to EU medical cost comparison is apples to oranges. Your statement is the opening line in a high school debate...

- seattleeng

March 10, 2010 at 6:35pm

If you built a bridge, seattle, it would surely fall down. But I can't tell whether the problem is that you are innumerate, illiterate, or both. Everyone who discusses the overhead costs that private insurance imposes on our health care system is clear in stating that the problem is not merely their profits but their own overhead costs and the overhead costs they generate for healthcare providers, all of which end up in the cost of the insurance. Yet you, who imagine yourself to be moved by numbers rather than emotion or ideology, keep insisting that insurance company profits are a trivial problem. Can you not read the words on the page? Are the numbers too difficult? Try this: http://economix.blogs.nytimes.com/2008/11/21/why-does-us-health-care-cost-so-much-part-ii-indefensible-administrative-costs/ "The United States spends nearly 40 percent more on health care per capita than its G.D.P. per capita would predict. Given the sheer magnitude of the estimated excess spending, it is fair to ask American health care providers what extra benefits the American people receive in return for this enormous extra spending. After all, translated into total dollar spending per year, this excess spending amounted to $570 billion in 2006 and about $650 billion in 2008. The latter figure is over five times the estimated $125 billion or so in additional health spending that would be needed to attain truly universal health insurance coverage in this country. One thing Americans do buy with this extra spending is an administrative overhead load that is huge by international standards. The McKinsey Global Institute estimated that excess spending on “health administration and insurance” accounted for as much as 21 percent of the estimated total excess spending ($477 billion in 2003). Brought forward, that 21 percent of excess spending on administration would amount to about $120 billion in 2006 and about $150 billion in 2008. It would have been more than enough to finance universal health insurance this year. The McKinsey team estimated that about 85 percent of this excess administrative overhead can be attributed to the highly complex private health insurance system in the United States. Product design, underwriting and marketing account for about two-thirds of that total. The remaining 15 percent was attributed to public payers that are not saddled with the high cost of product design, medical underwriting and marketing, and that therefore spend a far smaller fraction of their total spending on administration. Two studies using more detailed bilateral comparisons of two countries illustrate even more sharply the magnitude of our administrative burden relative to that in other developed countries. One of these is an earlier McKinsey study explaining the difference in 1990 health spending in West Germany and in the United States. The researchers found that in 1990 Americans received $390 per capita less in actual health care but spent $360 more per capita on administration. A second, more recent study of administrative costs in the American and Canadian health systems was published in 2003 by Steffie Woolhandler and David Himmelstein in The New England Journal of Medicine in 2003. The study used a measure of administrative costs that includes not only the insurer’s costs, but also the costs borne by employers, health-care providers and governments – but not the value of the time patients spent claiming reimbursement. These authors estimated that in 1999, Americans spent $1,059 per capita on administration compared with only $307 in purchasing power parity dollars (PPP $) spent in Canada." The excess administrative costs of $752 per capita in 1999 as between the US and Canada in 2009 dollars would be $815. That is 10% of per capita spending and represents about 30% of the amount by which our spending on healthcare as a percent of GDP exceeds that of France. Too complicated for you? Okay then, the excess administrative costs attributable to our private insurance system account for just about 1/3 of our problem. I know for sure that you are innumerate based on your last example. 5.5 times is the ratio of US doctors' income to median US household income. That includes the GM forklift operator and everyone else. If you lowered everyone's income in the US -- an outcome that you plainly devoutly wish to occur -- and lowered doctors' incomes by the same amount, they would still be be 5.5 time higher than the average! You do know what an average is, don't you? The whole point is that medical incomes in the US are much higher compared to the incomes, not of the French, but OF EVERYONE ELSE IN THE US. If the cost of GM forklift operators were somehow driving up the average income of everyone not a doctor, the doctors are still earning 5.5 times that average. When comparing US medical incomes to US household incomes and French medical incomes to French household incomes, that is by any standard and apples to apples and oranges to oranges comparison. You couldn't possibly know what the opening line of a high school debate sounds like. You are not even competent at elementary school level arithmetic.

- roidubouloi

March 10, 2010 at 11:36pm

If you built a bridge, seattle, it would surely fall down. But I can't tell whether the problem is that you are innumerate, illiterate, or both. Everyone who discusses the overhead costs that private insurance imposes on our health care system is clear in stating that the problem is not merely their profits but their own overhead costs and the overhead costs they generate for healthcare providers, all of which end up in the cost of the insurance. Yet you, who imagine yourself to be moved by numbers rather than emotion or ideology, keep insisting that insurance company profits are a trivial problem. Can you not read the words on the page? Are the numbers too difficult? Try this: "The United States spends nearly 40 percent more on health care per capita than its G.D.P. per capita would predict. Given the sheer magnitude of the estimated excess spending, it is fair to ask American health care providers what extra benefits the American people receive in return for this enormous extra spending. After all, translated into total dollar spending per year, this excess spending amounted to $570 billion in 2006 and about $650 billion in 2008. The latter figure is over five times the estimated $125 billion or so in additional health spending that would be needed to attain truly universal health insurance coverage in this country. One thing Americans do buy with this extra spending is an administrative overhead load that is huge by international standards. The McKinsey Global Institute estimated that excess spending on “health administration and insurance” accounted for as much as 21 percent of the estimated total excess spending ($477 billion in 2003). Brought forward, that 21 percent of excess spending on administration would amount to about $120 billion in 2006 and about $150 billion in 2008. It would have been more than enough to finance universal health insurance this year. The McKinsey team estimated that about 85 percent of this excess administrative overhead can be attributed to the highly complex private health insurance system in the United States. Product design, underwriting and marketing account for about two-thirds of that total. The remaining 15 percent was attributed to public payers that are not saddled with the high cost of product design, medical underwriting and marketing, and that therefore spend a far smaller fraction of their total spending on administration. Two studies using more detailed bilateral comparisons of two countries illustrate even more sharply the magnitude of our administrative burden relative to that in other developed countries. One of these is an earlier McKinsey study explaining the difference in 1990 health spending in West Germany and in the United States. The researchers found that in 1990 Americans received $390 per capita less in actual health care but spent $360 more per capita on administration. A second, more recent study of administrative costs in the American and Canadian health systems was published in 2003 by Steffie Woolhandler and David Himmelstein in The New England Journal of Medicine in 2003. The study used a measure of administrative costs that includes not only the insurer’s costs, but also the costs borne by employers, health-care providers and governments – but not the value of the time patients spent claiming reimbursement. These authors estimated that in 1999, Americans spent $1,059 per capita on administration compared with only $307 in purchasing power parity dollars (PPP $) spent in Canada." http://economix.blogs.nytimes.com/2008/11/21/why-does-us-health-care-cost-so-much-part-ii-indefensible-administrative-costs/ The excess administrative costs of $752 per capita in 1999 as between the US and Canada in 2009 dollars would be $815. That is 10% of per capita spending and represents about 30% of the amount by which our spending on healthcare as a percent of GDP exceeds that of France. Too complicated for you? Okay then, the excess administrative costs attributable to our private insurance system account for just about 1/3 of our problem. I know for sure that you are innumerate based on your last example. 5.5 times is the ratio of US doctors' income to median US household income. That includes the GM forklift operator and everyone else. If you lowered everyone's income in the US -- an outcome that you plainly devoutly wish to occur -- and lowered doctors' incomes by the same amount, they would still be be 5.5 time higher than the average! You do know what an average is, don't you? The whole point is that medical incomes in the US are much higher compared to the incomes, not of the French, but OF EVERYONE ELSE IN THE US. If the cost of GM forklift operators were somehow driving up the average income of everyone not a doctor, the doctors are still earning 5.5 times that average. When comparing US medical incomes to US household incomes and French medical incomes to French household incomes, that is by any standard and apples to apples and oranges to oranges comparison. You couldn't possibly know what the opening line of a high school debate sounds like. You are not even competent at elementary school level arithmetic.

- roidubouloi

March 10, 2010 at 11:38pm

gdbittner: It appears that my rather weak attempt at sarcasm was unsuccessful. My arguments were by design strawmen; obviously yelling at people isn't a particularly useful response. It just struck me that Seattle is basically saying "it's us that make the costs go up, so end of discussion". So what's the appropriate policy response to that? Telling people to not cost so much? Obviously the situation is a little more complex, with everyone working in their own best interests in what is a completely dysfunctional framework, as Roi has elaborated at length on above.

- Nari224

March 11, 2010 at 4:25am

Roid writes: "The McKinsey Global Institute estimated that excess spending on “health administration and insurance” accounted for as much as 21 percent of the estimated total excess spending ($477 billion in 2003). " See exhibit 2 in McKinsey. "Health insurance and administration" is $98B above what we should be spending in 2003. And that's out of $1.6T. That's 6.1%. One year of growth. Could be better, should be better. Would you move to a mandatory ID card and national billing program to reduce it? I would. Roid writes: ""The United States spends nearly 40 percent more on health care per capita than its G.D.P. per capita would predict. " Again, looking at Exhibit 2, we spend $477B out of $1.6T above and beyond what is expected given our wealth. That's 29%, and it includes our high doctor + nurses salary, hospital profits, etc. In return for that, we get the best cancer survival rates in the world, an oversupply of care, zero waiting times, unmatched preventative care (colonoscopies, etc) and on and on. And when world leaders in other countries get really sick, they come here. Is it worth it? Is a BMW 7 series better than a Kia? To some, yes. To others, probably not. You are right that we could finance our current shortfall with that $477B except getting that $477B requires you to force doctors and nurses to take cuts, reduce our supply of hospital beds, reduce the number of hospitals, etc. And don't forget, the people currently paying the bills are largely happy with THEIR insurance. So you really need to ask them if they want less in the way of service so that others that have prioritized a cellphone over health care can be covered.

- seattleeng

March 11, 2010 at 9:25am

Once again, seattle, you corrupt numbers in a manner that is abysmally ignorant. You don't even know how to compute a simple percentage. But I have things to do know. I will correct your paper later, but I can tell it is a D-. You must surely be the worst engineer on the planet. At least you have had the good sense to run away from the argument about excess direct costs imposed by insurance, which you claimed were trivial, and have now shifted ground to try and argue that we get value for the excess. You are a slippery bastard, always running away from the last steaming shitpile of untruths to start a new one.

- roidubouloi

March 11, 2010 at 10:18am

Seattle: You don't do your argument too much good with offhand comments about people who have "prioritized a cellphone over health care". This is obviously anecdotal, but I don't know anyone who doesn't have insurance (or who is effectively a ward of the state insurance-wise) who is paying iPhone level phone bills. They all have pre-paid cards, and most don't have landlines. Not sure what sort of insurance plan you can buy for that, but I can't imagine that it would be very useful.

- Nari224

March 11, 2010 at 1:12pm