Health Care Costs: An Aging Population is Not the Problem

A summary of Maggie Mahar's summary of a talk by Uwe Reinhardt on the source of rising health care costs. As noted here many times, an aging population is not the problem, it's a combination of technological innovation and rising labor costs:

The Mythology of Boomers Bankrupting Our Healthcare System, by Maggie Mahar, Alternet: ...[D]eveloped countries share many of the same problems. One that stands out is the fact that our populations are aging. Each country faces the same question: How will a shrinking work force possibly pay for the medicine their nations' retirees will need?

This brings me to Princeton economist Uwe Reinhardt's speech ...  on what he called "the folklore that people bring to the healthcare policy table." By nature an iconoclast, Reinhardt spent the next 20 minutes shattering some ... myths... Begin with the notion that an aging population is a major factor driving healthcare inflation. In the United States this is accepted...

Bad news is often more gripping than good news, and "if you want to be a popular speaker, you need to feed the paranoia of your audience," Reinhardt observed, pointing to the first slide of his PowerPoint presentation -- a chart illustrating just how quickly we can expect a horde of wrinkly boomers to take over the nation. ... [Note: the slides are shown in the Alternet article.]

A second slide is even more distressing, revealing that healthcare spending on patients over 75 averages about five times what we spend on 40-year-olds.

Yet the next graph that Reinhardt offers is a little puzzling. Here, we see that the United States spends close to $7,000 per person on care -- even though its population is younger than the citizens of most developed countries... Meanwhile, Japan's population has been graying for some time, yet it spends only $1,000 per person. Could eating fish really make that much difference?

Reinhardt's next graph provides the explanation. It turns out that when you look at estimates of growth in healthcare spending from 1990 to 2030, a senescent citizenry plays only a minor role in the projected jump from $585 billion (what we laid out for healthcare in 1990) to $14,026 billion (what analysts say we'll ante up in 2030...).

What will be the biggest factor pushing the tab so much higher? Innovation. "The healthcare industry will continue developing new stuff for every age group," Reinhardt explains. Will that "new stuff" -- in the form of new drugs, devices, tests and procedures -- be worth it? Some of it will be. Some won't. ... In many areas, we seem to have reached a point of diminishing returns. This also is true in the drug industry, where most new entries are "me too drugs" -- little different from products already on the market.

"In truth, the aging of the population is not a big problem," Reinhardt says. ... This doesn't mean that healthcare spending won't continue to levitate. "But what will drive costs in coming years, will come, not from the demand side of the equation, but from the supply side,"... We can be certain that, without some significant reforms, suppliers will continue to invent new products for every age group, charging us more and selling us more -- using whatever methods it takes, from direct-to-consumer advertising to promises of near immortality and perpetual youth... -- if we just swallow enough pills and replace enough body parts. ...

Moreover, healthcare is labor intensive.... We are already experiencing a shortage of registered nurses -- which has helped raise wages. ... Looking ahead, we'll probably need 50 percent more nurses than we employed in 2000. ...

So between the endless inventiveness of those who would overmedicate us to the unavoidable costs of a labor-intensive industry in an aging society, it is the supply side of medicine that is likely to push prices higher. This, says Reinhardt, is what policymakers should be thinking about.

But, he emphasizes, it doesn't have to happen. "If we begin to purge our healthcare system of Waste, Fraud and Abuse," we could save billions... And when it comes to caring for the elderly, he suggests, "If we develop healthcare information technology, we could use it to monitor seniors in their homes -- instead of in nursing homes."

This is just one example of how the United States could bring costs down on the supply side. In addition, Medicare could use its clout to negotiate for lower drug and device prices -- just as other nations do. We could become more discriminating about what we buy from the healthcare industry's suppliers...

Finally, Sweden offers proof that an aging population doesn't have to spell financial disaster. ... [the post goes on to discuss Sweden's health care system...]

Comments

[evagrius]

Is health care a commodity to generate profit? If yes, then let the costs go up and profit increase.
If not, then start providing preventive care from pregnancy to old age.

It's really a very simple question with a very simple answer as long as one leaves out the notion of profit. There's the rub.

[reason]

I want some explaination of the figure quoted for Japan. It seems remarkable. I know nothing about Japanese health care. How do they do it? (Why is there no link - they are greying more than Sweden is).

[Real Person from the Real World]

In general, Technology itself has gone down in cost. Computers today are as powerful as expensive supercomputers back in the 60s. What we have is a lot of middlemen who add no value, getting a cut: insurance industry. Furthermore, you used to buy insurance as, well, insurance. Not any more. Insurance is now someone else's investment, and as such, they have to cur their risks, also made easier by use of technology, to gather data.... so if you have health issues the one thing you can't get easily, is health insurance, and your health issues may also interfere in your ability to get hired. Also, age is getting to be a negative factor in getting a job, regardless of health. The next thing they will expect you to crawl in a hole and die when you get to a certain age.

[Lower Cost or More Rationing]

More laborers, lower wages, and more labor saving technology. Alternatively, more de facto rationing will take place. Take your pick.

[Choices]

More laborers, lower wages, and more labor saving technology. Alternatively, ever more de facto rationing will take place. Take your pick.

[save_the_rustbelt]

"If we begin to purge our healthcare system of Waste, Fraud and Abuse," we could save billions... And when it comes to caring for the elderly, he suggests, "If we develop healthcare information technology, we could use it to monitor seniors in their homes -- instead of in nursing homes."

Reinhardt, whom I respect, obviously has no clue about the acuity levels of nursing home residents, they are not in the home for monitoring - good God.

The "waste, fraud, abuse" line is a staple of politicians every four years, none of whom really know what they are talking about.

[bullbust]

The same Maggie?

...Maggie Mahar is the author of Bull! A History of the Boom and Bust, 1982–2004, a book Paul Krugman of the New York Times said "makes a devastating case against the contention that the market is almost perfectly efficient." In his 2003 annual report, Warren Buffett recommended Bull! to Berkshire Hathaway's investors...

If so, she is a sensible lady who calls out bull as she sees it.

[ECONOMISTA NON GRATA]

OT:

Pretty amazing chutzpah if you ask me... You should read this post from naked
capitalism.

"Buyout CLOs used for Fed Loans"

http://www.nakedcapitalism.com/2008/04/buyout-clos-used-for-fed-loans.html

Wall Street Mafia strikes again.....

Best Regards,

Econolicious

[robertdfeinman]

Just a plug for Maggie Mahar's main site:

http://www.healthbeatblog.org/

The Alternet article is a reprint of the one on her site which also contains several related postings. If this area interests you, have a look.

I've gone back and forth with her for the past several months over the degree to which private health insurance adds to the overall cost. She sees their profit as only adding about 4.5% to the overall sector (as compared to about 2% for overhead if it was run by Medicare or similar). I see the 20-30% overhead of the private insurers as a serious problem and as a market distorting effect.

This week she is discussing hospital overbuilding.

[The Baron]

"The healthcare industry will continue developing new stuff for every age group," Reinhardt explains. Will that "new stuff" -- in the form of new drugs, devices, tests and procedures -- be worth it? Some of it will be. Some won't.

There's the rub. Who decides which is "worth it" and which isn't? And if the cost of health care is rising due to expensive new treatments, in the U.S., does this mean that these new treatments, even the "worth it" ones are being kept from the rest of the world in order to keep costs down?

This argument has never made sense to me. The claim is that:
1. U.S. costs are so high due to medical innovation and new treatments, and advanced techniques.
2. Other countries don't have as high of health care costs as the U.S.
this implies:
1. Advanced techniques and innovation must not be available in other countries?
2. The quality of healthcare in other countries must be worse than we have in the U.S. with all our innovation and advances?

But we have seen that, in outcome based studies, other countries are providing better average outcome for the whole population, at much lower per person costs. Are the outliers in the U.S. that strong and skew the curves? Is it true that other countries are getting better results with antiquated techniques and medicines, and that to keep costs down they are deliberately not allowing the newer, more expensive, innovations into the country? If they have the same access to advanced health care that we do, then why is it so much more expensive here than there?

[baileyman]

Where's the discussion about healthcare related cartels and pricing power?

[Efficiency]

Perfect competition generally produces the greatest efficiency. If competition is impractical, the second best would be a reasonably efficient centrally planned system. A profit driven system that lacks effective competition is generally less efficient than the first two.

[lonesome moderate]

Baron:"The healthcare industry will continue developing new stuff for every age group," Reinhardt explains. Will that "new stuff" -- in the form of new drugs, devices, tests and procedures -- be worth it? Some of it will be. Some won't.
There's the rub. Who decides which is "worth it" and which isn't? And if the cost of health care is rising due to expensive new treatments, in the U.S., does this mean that these new treatments, even the "worth it" ones are being kept from the rest of the world in order to keep costs down

I suspect there are a lot of different points to this argument. One that we've all heard, though, is that here in the USA we pay far more for pharmaceuticals than other countries. The Medicare drug benefit seems to have quieted the fuss about the issue by shifting much of the cost from individuals to government. So far as I know, however, we are still paying much higher prices for many meds than other countries, because our government does not haggle with the drug companies over price.

[bp]

hello, i need an appointment
for my headache

ok, your type I appt is tomorrow AM
followed by a type II appt in PM

type I will cost 5k to eliminate false positives
to determine if you really don't have a headache

type II will cost another 5k to eliminate false negatives
to determine if you really have a headache

what happens if i really have a headache?

that gets you an appointment with a primary aspirin doctor who specializes in doughnut holes

[Andrew]

Medicare could use its clout to negotiate for lower drug and device prices -- just as other nations do.

Bush ensured that the government would not use its market share to drive down prices with his Medicare package.

This is a terrific series of charts giving a snapshot of health care costs in the US.

[Gerard MacDonell]

I just read John Taylor's paper "A Black Swan in the Money Market." Section 8 was particularly interesting and I hope he is resting comfortably and recuperating.

[JRossi]

A few comments from a family doctor:
Thanks for the heads-up on Mahar. I'll start reading her stuff. As str says, things that macro-experts like Reinhardt say about HC are often wrong. Monitor nursing home pts in their homes? Maybe for a some cases, but most nursing home pts need constant supervision. Many of them have the neurologic capacity of infants. Big, wrinkly infants with big stinky poops who are getting worse, not better. Would you remote-monitor your baby from miles away? Visit your local nursing home if you don't believe me.
Electronic health records have some promise, but it is as yet unrealized, and EHRs involve, you guessed it, more labor. Who will input all that data? Nurses? Rare as hen's teeth. Primary care MDs? Good luck finding one.
I liked the comment about underpaid pediatricians. This is the core of the issue. Specialists get paid too damn much and generalists get paid too damn little. See Mahar's info on the salary discrepancies. See the recent NYT article on the lack of family docs to implement the Massachusetts HC for all plan. Look up the medPAC advisory panel, which advises Congress on physician reimbursement. The specialists have a stranglehold on this so they get too much and we get too little.
Why should you all care? A specialist-dominated system is more expensive and of lower quality. The European and Canadian systems are (at least to a much greater degree) generalist-based. A universal care system, which I favor, must have enough generalists to avoid the crappy fragmented expensive medical care that we now have.

[JRossi]

I just read Mahar's January 22 post. She says generalists should get paid more. The woman is obviously a genius.

[save_the_rustbelt]

Yeah, what JROSSI said (I won't tell my orthopedist friends though).

Keep in mind that many of those innovations replace some other technique or treatment, so it not that everything is an addition, there is subtraction.

1968 gall bladder surgery - 12" incision, 12 day hospital stay

1988 gall bladder surgery - 6" incision, 6 day hospital stay

2008 gall bladder surgery - laproscopic surgery through three portals in an ambulatory surgery center, home the same day

[hari]

I think it's unfair to compare healthcare costs in US with Swedish conditions - it won't facilitate anything but serious misunderstanding. Why?

* In Sweden - healthcare was always a *national public service* sector under social democrats and conservative govs.

* The culture and social value system is not comparable to the diversity prevalent in US. In German, they call Sweden the "muster kind" of healthcare and pensioners.

* Sweden got head start because of social cohesion and taxation policy.

WWII left Sweden among OECDs richest countries (per capita) because it was not involved in both the great wars.

[mark]

Look around. People are getting sicker with dieases that don't kill them, but keep them hanging around. Look at the diabetes, fat young kids, autism, and depression. There is a epidemic of illness that doesn't get treated in this world and is exaserbated by the global economony that makes the problem worse by spreading diseases to people that haven't developed a resistance. The doctors solution is to put the patient on drugs to the tune of about $150 month per prescription. You can't blame DRs though they are just doing what the drugs companies trained them to do. write prescriptions. However, these medications are expensive and probably ineffective.

[Patricia Shannon]

Whether autism is really on the rise, or is being diagnosed more, or both, is still an open question. Although we are polluting our environment with chemicals that are known neurotoxins.

[James Killus]

I have a relative who is a highly skilled nurse, with administrative experience. She was recently unemployed for nearly a year. After some thought, I realized that nurses are largely being squeezed out of real administrative positions, because they sometimes make decisions based on patient care, rather than the return on investment, which is how a "real" administrator should operate.

Unregulated for-profit health care often becomes a simple matter of "your money or your life." Anyone who does not understand this believes in the Market Fairy, who makes everything come out wonderful, and don't you dare believe your lying eyes.

[Lafayette]

A mountain of money

TB: And if the cost of health care is rising due to expensive new treatments, in the U.S., does this mean that these new treatments, even the "worth it" ones are being kept from the rest of the world in order to keep costs down?

Health technology is advancing around the world. There is no reason to think that America is playing any particular lead-role in the matter. It is furthermore ridiculous to think it is being withheld for any particular reason such as cited above.

Much of that Health Tech is being fund by the Public Purse and is happening in national institutes of research or at the university level. It is difficult to believe that the research is being manipulated for purposes of profit.

Then again ... systems and mentalities are different. Universities in Europe are almost uniquely funded by national governments. Maybe a private stateside university could think that having a patent on a medicine or a device was in its best interests?

Whatever Venture Capital being put into research stateside will almost certainly result in a for profit business development of the results. Yet, I doubt seriously that we will find Health Tech is the smoking gun of aberrant Health Care costs.

I have made what I think is an exhaustive search on the Internet for cost accounting of Health Care services. The only results I came up with was an accounting analysis out of California and limited to the state.

In that analysis, it was readily observable that the culprit was singularly health care practitioner costs in the forms of salaries and fees. And, that is happening because the Supply of such practitioners is not adequate to meet the Demand.

Fix the Supply side and we can get a control of costs. That means investing in education and training. Instead of pissing a mountain of money away in some war over in the sandbox.

What idiocy.

[Lafayette]

Market HC Mechanisms

DR: Monitor nursing home pts in their homes? Maybe for a some cases, but most nursing home pts need constant supervision. Many of them have the neurologic capacity of infants.

In France we are testing home monitoring systems related to vital data (heart, body temperature, etc.). The larger part of the elderly are perfectly adaptable to such systems as long as they see also a home-calling nurse regularly. In fact, what these people need most is personal interaction due to their solitude. They would, in fact, be better off in Elderly Communities, which is the next frontier in terms of Health Care for that age group.

Once again, the French government is advancing this idea by subsidizing the construction of such communities, but run by private companies with government supervision of services provided. This means the premises are NOT owned by private companies who provide, upon periodically renewed bidding, to subcontracted HC-services. Consequently, the primary ingredients for such communities are High Standards of services delivered and Competitive Bidding to provide them.

Advancing this to home Out-patient or Elderly Care is just a hop, skip and a jump – in Health Tech terms. There is no alternative, given the growth in retirement numbers and their tendency to need more care ... than poopy kids.

Visit your local nursing home if you don't believe me

Yes, I welcome you to do so (here in France).

It is run typically by a private company, according to French HC-norms (heavily inspected) and the care is excellent. Of course, the cost is subsidized by the state, so the attention given tends to remain on average fairly good. It is costly to operate by the state, because maintaining a High Standard requires a battalion of inspectors. But, that is the price that must be paid for good Health Care that depends upon the market for purveyance of HC-services.

For as long as Health Care depends upon the Market Mechanism to provide its services. Despite the fact that it may be top-notch HC, it is certain to be also the most expensive. Why?

Because private practice Health Care has no mandate to provide its services to the largest number of people at an affordable cost. It therefore exacts the “going rate”.

Electronic health records have some promise, but it is as yet unrealized, and EHRs involve, you guessed it, more labor.

I have a national Health Care card. My health records are on that card, in résumé, but sufficiently detailed for any GP to see historical medical treatment.

That card also serves to get reimbursed the 21€ fee ($34 at today’s exaggerated rate of exchange) for my visit to my primary GP -- and all other specialist medical treatment that may ensue. That is, for instance, the fee for a GP who is Accredited by the French government to practice. (And, for whom, his/her studies were completely paid for by that same government, including their training internships.)

(Btw, how much do you charge for a visit? ;^)

My point: There IS an alternative means of providing National Health Care … and it is more affordable (per person treated) than the stateside variety, for generally the same level of competence, if not better. Most certainly, it covers the 16/18% of the work population that American HC insurance does NOT cover as well as a great variety of Specialist services that US HC-insurance does not cover adequately.

And, no ER’s with people waiting days to get palliative remedial care before they are released into the wild once again.

Who will input all that data? Nurses? Rare as hen's teeth. Primary care MDs? Good luck finding one.

Of course this is an obvious case of disconnected economic Supply & Demand -- where there is a genuine Supply problem. There has always been a Supply problem in terms of delivery of Health Care -- it has just become very acute. And, Market-based HC Mechanisms have not yet found an answer to it, because the means to furnish Health Care practitioners (GPs/Specialists, nurses, assistants, etc.) is very costly since it incurs a very, very long period of gestation.

How much did your degree, training, internship cost before you became a practicing doctor? Did you go into debt to provide it? If not, you’ve got some pretty rich parents.

But, why should national Health Care depend upon such risky circumstances, since it is obviously a National Priority for most Americans?

Your further comments regarding the discrepancy in pay is more or less due to the inability of the country to provide the means for producing more of the talents necessary. And, frankly, paying GPs more money is NOT going to solve the problem. It hasn’t in the past, why should it in the future?

This is the conventional wisdom of just about any high-skilled profession when faced by a dearth of such manpower. Health Care professionals ARE sufficiently well-paid in the US. They are amongst the best paid in the world.

The only answer is a concerted effort by the government to attract and subsidize the development of those talents.

Health Care is a Public Service, not a business. I liked the comment about underpaid pediatricians.

I posted on this forum data from the Bureau of Labor Statistics indicating the median salary for the profession (GP’s and Specialists combined) as $150,000. So, just what do you mean by “underpaid pediatricians”? With respect to who, the rest of the profession? Because, with respect other professions, yours is damn well paid – which is the primary cause of costly American Health Care.

The European and Canadian systems are (at least to a much greater degree) generalist-based.

Good question. I shall look into the matter.

But, I still think you are barking up the wrong tree. The heart of the problem is the general level of cost of ALL HC-practitioners. And, it is due to the high cost of Education and the Gestational Period before they become effective.

[JRossi]

Ah, Lafayette on health care. Fact, fiction, reasoned analysis, and Montana-sized blind spots all in one post.
Yes, Lafayette, if we could take 50 or so years and morph the United States in France, our health care system would be more to your liking. I ain't gonna happen, bud.
With respect to whom are generalists underpaid? Crucial issue, one of your blind spots. With respect to other MDs and non-medical people who live in AMERICA who have similar talent, education and work effort. If MDs were actual slaves in France, no pay at all, it wouldn't matter to our market here. It's a national market. That's the reality. That's the way it is going to stay. Serious analysts understand this.
Home monitoring in France. Great, keep up the good work. We have assisted-care facilities and home care in the US too. They're appropriate for some people. They don't work for the end-stage Alzheimer's pts who populate our nursing homes.
Educational debt. A bullshit issue. The issue is salary and work discrepancies among specialties. Look at Mahar's data. A dermatologist, who has 12 years of after high school training, in 1 year can earn enough money to overtake an FP(11 years after high school)-the driver of the generalist shortage is salary discrepancies, not ed debt. The ed debt is incorrect convention wisdom. I know, I talk to med students. And you like many others believe the CW.
I agree with you that a system more like yours would be better for US citizens. But remember cultural context, Lafayette, cultural context. Repeat those words to yourself 100 times. The US HC system exists in a individualistic culture.

[Real Person from the Real World]

A single payer system, the VETERAN's Admin, exists in the US, and delivers better care than those outside the system. PK has mentioned that more than once.... While we have an "individualistic" culture, we can develop our own version of a health care system. Why copy cat somewhere else? Right now there are plenty of people hurting. HC is only one pain among many, but it will get worse, with an aging population. OTOH, take a look at all the MIDDLE MEN collecting a cut of the pie, everywhere you look. Get rid of these parasites of the privatization mentality, who create nothing, only collect fees, and maybe you will start to improve things.

[Patricia Shannon]

It might not be as bad as some think

http://www.sciencedaily.com/releases/2008/02/080204212858.htm

Lifetime Medical Costs Of Obese People Actually Lower Than Costs For Healthy And Fit, Mathematical Model Shows

ScienceDaily (Feb. 7, 2008) — A new research paper suggests that preventing obesity might result in increased public spending on medical care. Many countries are currently developing policies aimed at reducing obesity in the population. However, it is not currently clear whether successfully reducing obesity will also reduce national healthcare spending or not. Pieter van Baal and colleagues, from the National Institute for Public Health and the Environment in the Netherlands, created a mathematical model to try to answer this question.
...
The researchers found that the group of healthy, never-smoking individuals had the highest lifetime healthcare costs, because they lived the longest and developed diseases associated with aging; healthcare costs were lowest for the smokers, and intermediate for the group of obese never-smokers.

However, the authors argue that although obesity prevention may not be a cure for increasing expenditures, it may well be a cost-effective cure for much morbidity and mortality and importantly contribute to the health of nations.

True many/most people are resistant to changing their lifestyles, but many/most people are also resistant to changing their psychological habits, even when they have been proved to be harmful to themselves.

http://www.sciencedaily.com/releases/2007/06/070603215232.htm

Harboring Hostility May Be Linked To Unhealthy Lungs

ScienceDaily (Jun. 4, 2007) — Young adults with a short temper or mean disposition also tend to have compromised lung function, says a recent study published in the journal Health Psychology, by the American Psychological Association (APA). This occurred even when asthma and smoking were ruled out as possible causes of lung dysfunction.

http://www.sciencedaily.com/releases/2007/08/070803150523.htm

Hostile Men Could Have Greater Risk For Heart Disease

ScienceDaily (Aug. 4, 2007) — Men who are hostile and prone to frequent intense feelings of anger and depression could be harming their immune systems and putting themselves at risk for coronary heart disease as well as related disorders like type 2 diabetes and high blood pressure, a new study finds.

http://www.sciencedaily.com/releases/2007/08/070818182459.htm

http://www.sciencedaily.com/releases/2007/08/070818182459.htm

Cynical Shyness Can Precipitate Violence In Males And May Be Factor In School Shootings

ScienceDaily (Aug. 19, 2007) — After performing an analysis of school shootings in the last decade, researchers at the Shyness Research Institute in Indiana say that the perpetrators are likely to suffer from cynical shyness--an extreme form of shyness that predominantly affects males and can lead to violent behavior.
...
They examined the news accounts of these shootings for personal and social indicators of cynical shyness--lack of empathy, low tolerance for frustration, anger outbursts, social rejection from peers, bad family relations and access to weapons.

"Our results indicate that the individuals involved in the seven deadly high school shootings within the last decade clearly had characteristics of cynical shyness. Most of what we see in individuals with this extreme form of shyness is that they tend to be male and desperately want to be socially engaged with other people. But often lacking in social skills, these individuals get rejected by their peers and then avoid social connections because of the resulting pain," said the authors.

This rejection repeated over time can intensify feelings of hurt that can ultimately turn into anger. To handle the rejection, says Carducci, these males create what he calls a "cult of one." "They end up alone and start hating the people who reject them. This allows the cynically shy person to distance himself from the hurt but also makes it easier for him to retaliate with violence, as in the case of these school shootings."

I very much doubt the jerky members of our blog community are suddenly going to throw off their hostility and become warm and caring, even though it would be better for their health.