Because yesterday turned into a snow day with double-digit-hours of Xbox 360 time, I missed Steven Pearlstein’s essay dissecting America’s health-care system. There are too many ridiculous statements to fully fisk Mr. Pearlstein’s biased ideas. Instead, I want to address (in more detail than I expected) a couple of his essay’s more egregious flaws. First, his premise:
Or, put another way: Although doctors, hospitals, insurers and drug companies say they, too, want things to change, any comprehensive reform would reduce their incomes and their profits.
All this becomes quite clear from a new study on the U.S. health-care system released without fanfare last month by McKinsey Global Institute, the independent research arm of the giant consulting firm, which counts many health-industry giants among it clients.
There’s the usual talk of expensive college loans and so forth. He (weakly) addresses the counter-point, so I’ll just add that there’s a difference between the level of precision needed to correctly code software to produce accurate financial statements and the level of precision needed to operate on a human heart and keep the patient alive. This should be obvious to dismiss the misconception that doctors and medical care are mere commodities that can controlled by the government.
The study aimed to determine why the United States spends nearly double the average of other industrialized countries on health care — with no better, and in some cases inferior, medical outcomes. Even after adjusting for wealth, population mix and higher levels of some diseases, McKinsey calculated that we spend $477 billion a year more on health care than would be expected if the United States fit the spending pattern of 13 other advanced countries. That staggering waste of money works out to 3.6 percent of the nation’s entire economic output, or $1,645 per person, every year.
It’s interesting that we spend more money, but why should we expect that the United States will or should fit the spending pattern of 13 other advanced countries, all with at least some degree of socialized health care? How many stories of long delays and surgeries denied do we need to hear about before we decide that we should analyze our spending based primarily on our needs and wishes? The notion from this study, as Mr. Pearlstein states repeatedly, is that this $477 billion excess is wasted and unnecessary. Perhaps it is, and Mr. Pearlstein provides a useful explanation or two. Unfortunately, he fails to notice these explanations as a cause for this waste, instead assigning the blame squarely on a “greedy” medical system. For example:
What we have here is pretty good circumstantial evidence of Pearlstein’s First Law of Health Economics, which holds that if you pay doctors on the basis of how many procedures they do, and you leave it to doctors and their insured patients to decide how much health care they get, consumption of health services will rise to whatever level is necessary for doctors to earn as much as the lawyers who sue them.
Universal health care will fix this problem, of course. Public money means some procedures and tests will be deemed unnecessary. I’m willing to theorize that this will cost at least one patient her life in the course of any future socialized health care system in America. Of course, it would be foolish for me to pretend that it won’t or can’t happen under private health care insurance. But who should bear the responsibility of making the decision on what might be appropriate, the patient or a bureaucrat?
But that’s not the point of that excerpt. Notice Mr. Pearlstein’s flawed theory of economics. Physician greed will lead to an excess. The fact that the patient is insured to an extent that he will never see the full cost of these procedures means nothing. Ignore that there are few incentives for the doctor or the insured patient to discriminate in choosing a test. That’s just silly. It must be physician greed, carried through their investments in medical labs. I would change his pet theory to Pearlstein’s First Law of Progressive Health Economics.
Don’t be distracted by arguments that American doctors need to make more because they have to pay $20 billion a year in malpractice insurance premiums forced on them by a hostile legal system, or an equal amount for all the paperwork required by our private insurance system. The $58 billion in what the study defines as excess physician income is calculated after those expenses are paid.
Excess income. The patient is paying those fees that lead to “excess” income, no? He can refuse, of course, but why would he? He’s not paying the bulk of the bill. I wonder what his analysis would be if he were paying the bill. Let’s not forget a fundamental fact here, either. These patients are letting doctors make decisions that assess and propose fixes for their health. Should we fault them for being cautious? Again, who is the better judge for how much testing he wants done?
Proponents of a government-run “single-payer” system will certainly home in on the $84 billion a year that McKinsey found that Americans spend to administer the private sector portion of its health system — a cost that national health plans largely avoid. But as long as Americans continue to reject a government-run health system, a private system will require something close to the $30 billion a year in after-tax profits earned by health insurance companies. What may not be necessary, McKinsey suggests, is the $32 billion that the industry spends each year on marketing and figuring out the premium for each individual or group customer in each state. Insurance-market reform could eliminate much of that expense.
This is the heart of the debate, isn’t it. Government can run the system better, to the tune of $84 billion in eliminated² waste. Right. Show me one government-managed program that has managed such a task. Just one.
¹ I watched the end of Wall Street last night. I still enjoy it tremendously, but Oliver Stone’s assumptions about capitalism and wealth creation are preposterously amateurish. However correct his analysis of the finance in the 1980s may be, resting underneath the entire premise is that making money is a dirty deed. This is obscenely lacking in nuance, as evidenced by most every line Martin Sheen uttered in the movie.
² The basic issue here is how much of that $84 billion is wasted trying to comply with a myriad of absurd, interventionist government regulations. I guess the argument is sound that government-run health care would eliminate this, but creating the burden is not a justification for nationalization to eliminate that burden.