All healthcare data are not equal

We all know about the problem of health care costs, about how much Americans pay out-of-pocket, about the cost of prescription drugs, about what’s driving costs and the false narrative that the problem is health insurance companies.

The fact is that in 1960 Americans paid 96% of the cost of prescription drugs, today that’s 14%. Yes, drugs are more expensive. On the other hand, there are far more effective drugs treating more disease, some unknown in 1960.

What drives our spending on health care? It’s not premiums, it’s because of the spending behind those premiums, primarily hospital and physician services.

5 comments

  1. Mr. Quinn:

    I may be missing the point you’re trying to make here. But whatever that point might be, these “charts” aren’t very convincing – or even informative.

    On the first chart ….

    You state, “The fact is that in 1960 Americans paid 96% of the cost of prescription drugs, today that’s 14%.”

    I would argue that “Americans” paid 100% of the costs of prescription drugs – BOTH in 1960 AND “today”! The fact that those “Americans” paid for some of those prescription drugs indirectly by way of paying Insurance Premiums (and Taxes) FIRST, is NOT an indication that “Americans” paid an exorbitant 96% of “costs” in 1960, but only 14% today.

    Which brings up another glaring problem with the chart – looking at the chart alone, it seems only some 60% of the total 100% of prescription drug costs are paid now, AT ALL! I suspect not.
    Ostensibly, what isn’t indicated on that chart (the “white space” below 100%) is the “other” third-party payer: Government. But that’s not indicated on the chart. One way or another, SOMEBODY is paying for the difference between the sum of two sources listed on the chart, and the 100% of costs. And I’m pretty sure that SOMEBODY is American!

    On the second chart ….

    Indicating “cost” increases over some 60 years this way is virtually meaningless without also indicating whether these are inflation-adjusted (“real”) dollar-cost increases, or just “nominal” dollar-cost increases. And the chart doesn’t indicate that. Point being, we already know health care costs have dramatically increased over that 60 year period. This chart, however, does NOT tell us by how much – even in a relative sense between the listed contributing factors – in anything like an informative way.

    A quick summary ….

    I do (sort of) get what you are trying to say here – that Health Insurance Company “profit margins” are not the problem in U.S. health care cost trends. And with that, I totally agree with you.

    But “profit margins” are NOT the only contributor to “profitability” of health insurers either. A fixed 2% “profit margin” on $10 Billion of medical cost outlays results in MUCH MORE “profit” than that fixed 2% “profit margin” on a mere $1 Billion of actual medical cost outlays – for ANY insurer.

    That’s the “Spending behind those premiums ….” that you allude to in your text. And THAT is the reason health insurers have absolutely NO INCENTIVE to negotiate down or “reduce” their actual medical cost outlays. In fact, they have every incentive to INCREASE their actual medical cost outlays – especially with a low, fixed “profit margin”!

    I’m a died-n-the-wool capitalist, so I don’t have a particular “problem” with insurers, or anyone else for that matter, being “profitable”. Just the opposite, in fact.

    But there are two very glaring problems with health insurance in general, that provide the largest contribution to increasing health care costs here. The first problem is just what I indicated above: that health insurers have NO INCENTIVE to reduce health care costs, and EVERY INCENTIVE to see them increase!

    The second problem with health insurance in general, is it creates and propagates the myth and illusion that Health Care is “free” – or worse, that it allows “Americans to ONLY pay 14% of costs, rather than 96% of costs!”

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    1. Profit margin or indeed profit is not based on health care costs, it’s based on the difference between premiums collected and all expenses paid including claims. Insurance needs to keep a balance between the two. Don’t manage costs and premiums go up thus making you less competitive. The key to raising total profits is to increase volume of the number insured. There are many, including many doctors and liberal advocates, who are convinced the insurance model is based on raising deductibles and denying claims. That’s not correct either.

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  2. Yes, this message is critical to understanding health care. Since 1960, the necessities of life have not changed very much: food , clothing and shelter. We may spend more on what we call necessities, but they are “highly enhanced”. What has changed profoundly is health care. We spend much more because we get much more.

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    1. I was think the same thing. The advancements in healthcare has been a lot in 60 years. Cancer used to be a death sentence as well as HIV, heart attacks, and even polio was still a problem. I was placed on blood pressure medication at age 39. But 60 years ago, I might have had a heart attack from high blood pressure and if I lived, I might have gotten blood pressure medication. Instead I been paying for drugs for almost 20 years now therefore more money is been spent now than 60 years ago. Care used to be done in open wards or multiple patients to a room. Most hospital are making signal patient rooms to control infection and to comply with HIPAA laws. More rooms cost more money.

      I think a more accurate comparison would be how much healthcare has gone up in the last decade compare to inflation which by some reports is running about 3x the rate of inflation. However Obamacare upset the market during those years so is it truly 3x or is it more?

      Just like medical costs, you cannot compare apples to apples or decade to decade.

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      1. Hi Dwayne.

        To provide some answer to your question on general inflation versus health care inflation, I’ll refer you to the U.S. Bureau of Labor Statistics latest Consumer Price Index for All Urban Consumers (CPI-U) report – just released: https://www.bls.gov/news.release/pdf/cpi.pdf

        It basically says that, for the 12 months ended November, overall CPI-U annual inflation rate was 2.1%. Also in that report, over the same period, the “Medical care services” component inflation was 5.1%.

        And for Health INSURANCE – at least the Medicare Part B premium – the cost increase is from the current $136 per month to $147 per month for 2020, or a 6.6% increase. I haven’t yet been informed of how much my Medicare supplement insurance increase is going to be for 2020.

        Bottom line: You can pretty much count on health care and health insurance costs to continue to increase at least 3+ time the rate of general inflation – unless something SIGNIFICANT is done to slow or stop that growth rate. Suffice to say, more Government (M4A, etc.) and/or more “health insurance” is only going to keep that 3+ times inflation trend going.

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