Impeding changes to our Health Care system

[TheMercenary]

A great commentary:

Jul 7 2009, 2:41 pm by Megan McArdle

Medicare's Mythical Administrative Cost Savings
The title of this post is going to make some of my readers very angry. Medicare has lots of administrative cost savings, they will say. This may be so. But I mean mythical in another sense: there's ultimately no way to prove or disprove these amazing savings. The problem is indeterminate.

Jon Cohn, who I respect greatly, spends a lot of time on the money and time that insurance companies put into denying claims. This is undoubtedly true. But I have two caveats. First, some of that effort is a good thing: without it, there would be fraud. No, not the automatic denials so many insurers are fond of, and I'm not defending. But Medicare should probably spend a lot more effort rooting out excessive billing. And I don't know what percentage of claims denial consists of refusing to line the pockets of doctors and labs.

But the more important point is that I doubt this is the majority of their administrative costs, or even the difference between their administrative costs and Medicare's. I'm not trying to justify the bullshit automatic claims denial, but that's not actually a very costly process: a hospital submits a bill, they deny it, you yell at them. Nor is refusing to cover people with pre-existing conditions, or any of the other multifarious complaints of single-payer advocates.

Rather, private insurers have costs that Medicare doesn't have within the agency. Private insurers bill. Medicare does too, but the IRS has its own budget--hell, its own courts--which don't show up on Medicare's balance sheet. Private insurers negotiate with suppliers. Medicare does too, but most of the negotiation takes place between lobbyists and Congressmen who again, do not show up on Medicare's balance sheet. The Federal government has all sorts of these little items which relieve government agencies of reporting certain costs. But the costs remain.

My guess would be that these explicit costs are still lower than Medicare's. But then there are implicit costs to government fiat that markets don't have. As Tyler Cowen points out, taxation has deadweight losses, and Medicare is a tax on employment, which is something we are particularly anxious not to suppress right now.

The final point is that while people commonly think of administrative costs as "wasted", in fact, they are an important part of the market system. As Alex Tabarrok points out, and I have myself from time to time, many of the arguments in favor of national health care are literally socialist. And no, I am not using that term to apply to "anyone who is in favor of redistribution" or "government programs". But consider the following common arguments:


1. National health care will be cheaper because we will reduce administrative overhead

2. National health care will reduce wasteful competition in the form of me-too drugs

3. National health care will reduce wasteful competition in the form of advertising and other marketing expenses

4. National health care will allow us to rationally distribute care to where it does the most good rather than the current messy, wasteful hodge-podge

5. National health care will use resources for production instead of profits

6. National health care will achieve economies of scale in purchasing and record-keeping

7. People will not overuse free goods because there are hard limits to desired consumption

These were all arguments advanced in favor of socialism. Contrary to popular conservative belief, socialists were not unfamilier with either the incentive problems of communism (people will not work hard if there's no benefit to doing so) or the Hayekian argument about the value of prices, aka the Socialist Calculation Problem. Rather, smart socialists thought that they could overcome these problems with a combination of status competitions (Hero of the Soviet Union, Second Class) and massive efficiencies gained by wringing all that fragmented, wasteful competition out of the system. Economists who would be ashamed to make these sorts of arguments about Proctor and Gamble or the used car market suddenly start parroting these things as if they hadn't been thoroughly discredited by the last seventy years.

But why were they discredited? That list looks really, really good on paper, even to my jaded libertarian eyes. A lot of the answer lies in the reason that we don't like monopolies--even though that list is just as true of monopolies as it is of the government. Monopolies, government or private, are risk averse, slow to innovate, and generally run things for the benefit of themselves rather than their customers. Hamstringing them with regulations can limit measurable outcomes, like excess profit-taking, but not unmeasurable ones, like the people who might have been cured by a drug the system didn't invent. And the political system introduces its own problems. As Robert Heinlein pointed out years ago, systems that have only positive feedback loops tend to fail catastrophically.

My critics will want me to explain why, then, Europe can do it cheaper. The answer is threefold. First, most European nations have better governance than we do--the American political system is a Public Choice disaster. Second, they pay people less money in a way that's hard to replicate here (and even if it wasn't, would be a one time savings that wouldn't check the rate of growth). Third, we're still driving quite a bit of product innovation. Our messy, organic, wasteful, unfair, irrational system allows experimentation, and they cherry pick the best results. If we stopped doing this, their system would stop looking so good.

http://business.theatlantic.com/2009...st_savings.php

[TheMercenary]

Good God people at least Google:

"administrative costs of medicare" and see what BS Redux is feeding you...

If you look at what I posted, it was that Medicare administrative costs were relatively low compared to private insurance. I did not say lower.

And given, that one of the largest components of administrative costs are related to customer service, one should expect that portion to be higher for elderly and disabled as opposed to young and healthy.

For the record, I dont want a public option or a public/private exchange based on the Medicare model; but rather on the FEHB model.

One of the latest Republican amendments was to disband FEHB because it is unfair that government employees get affordable and quality choices in their health care while small business employees and self-employed, with no employer plan, pay full market prices....rather than expand FEHB to make it available to small businesses, etc. so those workers can benefit from the FEHB private provider choices.

[TheMercenary]

Thanks for qualifying that. SO they are not really lower. And there is not REALLY a savings. As usual when the Gobberment sticks it's finger in it there is a greater cost to the tax payer.

Originally Posted by TheMercenary

Thanks for qualifying that. SO they are not really lower. And there is not REALLY a savings. As usual when the Gobberment sticks it's finger in it there is a greater cost to the tax payer.

I didnt expect you to address the concept of an expanded FEHB model.

Its far easier to vilify Medicare.

I did get a laugh out of the fact that you posted Megan McArdle....the anti-government "death panels" queen who, btw, is on the payroll of libertarian "think tanks" and the tobacco industry. No hidden agenda there.

http://business.theatlantic.com/2009...st_savings.php

What is that...your fourth or fifth Megan McArdle "reliable source" editorial? I lost count.

[TheMercenary]

Originally Posted by Redux

I didnt expect you to address the concept of an expanded FEHB model.

Its far easier to vilify Medicare.

Medicare IS the model that the Demoncratically Controlled Congress is holding up as an example of efficiency and cost savings. Total Bull Shit. It is doomed for failure on that premise. And you know it. The Dem’s can’t have it both ways. Hold up one failed program and an example of success, all the while chortling the advantages and wonderful aspects that never really existed. It is nothing more than smoke and mirrors and the American public is about to be sold a Bill of Goods that neither address the root causes of a failed healthcare system nor some panacea of a fix by a power hungry Demoncratic majority. Sooner or later the people will see that the Emperor and Savior Obama wears no clothes.

[TheMercenary]

Outlays for elderly and handicapped are naturally higher than those for younger and healthier.

Why should that come as a surprise to anyone?

[TheMercenary]

Actually a more complete example:

[TheMercenary]

Originally Posted by Redux

Outlays for elderly and handicapped are naturally higher than those for younger and healthier.

Why should that come as a surprise to anyone?

OH? So you were just going to ignore those costs as a part of the total as the majority of those using the system leave a status of Baby Boomer and into Medicare?

And again, one of the largest components of Medicare administrative costs are related to customer service, something that is naturally higher than younger and healthier patients.

And if you would take the time to look at the public/private exchange proposals, they are based more on the FEHB model than the Medicare model.

[TheMercenary]

One of the only good parts of the Obamanation Plan is that he is going to make a WHOLE bunch of people start to pay into the system who never had insurance before. That should satisfy those back door deals he made with the Insurance Industry very happy.

[TheMercenary]

Originally Posted by Redux

And again, one of the largest components of Medicare administrative costs are related to customer service, something that is naturally higher than younger and healthier patients.

And if you would take the time to look at the public/private exchange proposals, they are based more on the FEHB model than the Medicare model.

That is patently false. I mean since there is actually no Bill before Congress for us to dissect.

[TheMercenary]

Hey Redux, please provide us a link the Bill currently before Congress so we can all look at the details of what the Demoncrats are proposing. Thanks.