Economics of Health Care (The Economist)

[On the Road]

from Brad deong:

Health Care

The Economist has a somewhat muddled survey of health care. Being the Economist, its writers have immense faith that competitive markets and consumer choice will solve all problems. But they do run into reality: Consumers don't like being put into managed-care plans in which their insurers bargain with providers by channelling business to doctors who are willing to accept extra-low rates. When insurers bid for shares of business, they work very very hard to make sure that the high-risk patients are somebody else's responsibility.

The market for health care is perhaps the part of our economy that works least well, in the sense of there being the greatest shortfall between the value-for-money our technology promises and the value-for-money we realize. But figuring out how to improve it is really, really hard:

Economist.com: ...eforms in the 1990s sought to deal with the underlying cause of health-care cost inflation: the ease with which medical providers can pass on costs when consumers pay for medical care through a third party. In America, this took the form of managed care.... Employers shepherded their workers into health plans that curbed costs by restricting members' freedom to choose their providers of medical care. Between 1988 and 2000, membership of managed-care plans rose from 27% to 92% of workers with health coverage through their employers.... ll health plans have some degree of leverage over the doctors and hospitals in the HMO or PPO, allowing them to negotiate discounts on the price of their services and to exercise some control over the utilisation of medical care.

For a time, the managed-care revolution appeared to be working... a sharp deceleration in the real growth in total health-care spending per person in America, to 2.4% a year between 1993 and 1999, half the growth rate in the previous 20 years or so. The slowdown was an enormous relief to employers.... But doctors hated managed care, which attacked both their wallets and their cherished independence. So, too, did American workers, who resented the restrictions it imposed on their choice of doctor and care.... Most managed-care plans have now loosened their restrictions on choice of physicians and utilisation of service. And sure enough, employers' health-insurance costs have returned to double-digit growth.

As the dust has settled, it has become clear that the managed-care revolution was more apparent than real. The aim was to spread the Kaiser model across America, ushering in a new era of competition between Kaiser-like organisations. But according to Francis Jay Crosson, who heads the physicians' side of Kaiser Permanente, the company's culture has developed over many years and could not be replicated elsewhere overnight just because the insurers required it. Mr Pauly puts it differently: “Managed care seems not to have met the market test.” So what started as a revolution turned out to be mainly a mechanism for insurers to secure price discounts from physicians and hospitals....

---snip, snip, snip

http://www.j-bradford-delong.net/movable_type/2004_archives/001224.html

-----------

I think the article's a little better than Brad deLong does, but then I'm just a beginner on the subject. It's worth reading, and the Economist is a pay site. He must have had permission to post such an extended segment.

[stevebreeze]

1. the way our health care system works in this country shows that

capitalism is NOT the answer to all our ills. When they get seriously ill do people bargain shop for the cheapest doctors? Why does our health care system cost twice as much as virtually any other country per capita and still deliver lower quality of care them 39 other countries with universal care? Also Why do doctors who's largest lobbying arm, the AMA fight universal care? I love the bit about their "independence" since they are fighting to cap our right to sue them for their (sometimes) incompetence. It is also of note the the number of doctors are limited by government funding of medical hospitals and government limits on foreign doctors entering this country.
We need universal care in this country and we need it now.

[Lydia Leftcoast]

2. Formerly insured by Kaiser-Permanente, I am sad to say

that even THEY aren't benfitting from the "Kaiser model" anymore.

In the last year I was with them, both premiums and copays skyrocketed.