Klein on Healthcare

Ezra Klein brings us this interesting thought on the costs of (private) healthcare in the US:

The mechanism here is simple enough. As the report says, "Since health insurance premiums are growing more rapidly than total compensation in percentage terms, an increasing share of total compensation that a worker receives goes to cover health insurance premiums."

But workers don't see it that way. That slumping line isn't normally called wages-minus-health-premiums. It's called wages. And most workers think stagnant wages mean their employer is paying them less. They don't know that the main reason for stagnant wages is that their wage increases are going to pay for their health insurance premiums. If they did -- if they realized that compensation is pretty much a zero-sum endeavor and their employers don't so much buy them health insurance as garnish their wages to pay for their health insurance -- you'd probably see a lot more general anger at rising health care costs.

The graph is illuminating in that very few studies of the last twenty years or so have factored in the costs of employer-sponsored health insurance in the compensation totals in this way: too many have focused on the direct wage component. By incorporating the expenditure on healthcare in the total compensation calculation, the study highlights both how US payrolls are at once over- and under- valued: overvalued in that total compensation has increased substantially over the observed period which makes a good case for the expense of the US worker, undervalued in that so much of the compensation is being consumed by the healthcare system.

I for one doubt strongly that anyone now making $50,000 thinks that his/her healthcare should cost $15,000 of that annually, nor would anyone making $35,000 be sanguine knowing roughly half again his/her salary goes toward healthcare, yet this is (roughly) the cost of those programmes camouflaged by the employer's contribution to the system. If the analysis is at all accurate then the trend needs to be stopped before healthcare costs equal the wage component of the compensation pie.

This is an arithmetic that merits far greater attention - particularly as the healthcare debate continues in the Capital.

H/T Andrew Sullivan.

Quote of Two Days Ago The Day

"Those people are different."

- a nurse in a Fresno hospital telling a patient why other patients' visitors were allowed where she was but her (same sex) partner was not.

Pam Spaulding has the horror story over at Pandagon. Well worth reading.

A Dream Deferred

Carl over at The Reaction has put up a very thought-provoking piece about the steps the Obama administration and Congressional leaders are taking to advance a progressive agenda. He's concerned - and with reason.

It's a radical departure from congressional precedent, in which budget rules have been designed and used to reduce deficits, not expand the size of government. And it promises bitter divisiveness under an administration that has made repeated promises to reach across the partisan divide.

For my part, I see the move as something rather different, and dangerous in its own way.

One of my longest-held political principles is that a budget process that can be balanced over time is critical tot the stability of any government. Keynes spoke to this eloquently: when the economy is weak, the government must spend to stimulate production, but when the economy is strong, the government must recoup those expenditures as preparation for the next downturn. Economists following Keynes, and economic policymakers, have made ample use of the first half of the principle. They have, however, conveniently forgotten the second.

Congress has presented multiple pieces of legislation to require the federal budget be balanced as a matter of practice. The amendments offered, however, were to require a balanced budget every year. This, if Keynes is correct, is not only impossible but massively unwise as it prevents the federal government from taking action to stimulate a faltering economy even as it likewise prevents the same government from recouping those losses and posting a net gain during times of prosperity. Balanced budgets under these conditions would enshrine a certain amount of debt: any obligation outstanding would necessarily be retained as a sort of credit line that once paid off could never be incurred again, preventing its closure just as the interest paid on it would become - as has become the de facto case - merely the cost of governance.

The GOP showed its hand in the 90s, demanding a balanced budget. It was no doubt to their chagrin that the Clinton administration, buoyed by a thriving tech sector, was able to oblige. However, the taxation required to maintain the progression was successfully presented as an excessive burden. Whether this was an ideological position, or merely maneuvering to sabotage the economic success of the Clinton years, is not clear. What is clear is that the Bush administration lost no time revising the tax code, sabotaging the balanced budget effort even as they made the burden less on the higher economic echelons of society.

I will freely admit that I have never had a particularly high opinion of the Bush presidency. There are many reasons for this, the brutality of the GWoT and radical rewriting of public ethics being chief in my complaints. However, the effective nuking of the federal budget is not far behind. Bush's policies did little to diminish the size of government except in areas of particular interest to the most radical of the administration's supporters. Reduced taxes placed an excessive burden on the existing infrastructure. And the various efforts of the GWoT squandered what little was left, leaving the US massively in debt and all hope of a short path to a balanced budget and reduced federal obligation in the dust.

This is the fiscal mess that Obama has inherited along with the economic collapse. Abandoning the irresponsible tax cuts of the Bush administration would in ordinary times be a responsible measure aimed at balancing the budget. Under the present circumstances, however, a balanced budget is as realistic as flying to the moon on a contraption built of string and sealing wax. The shattered economy combined with the enormous costs of occupation of two foreign lands make any attempt to balance the federal budget in the near future suicidal at best.

In turn, the radically increasing costs of healthcare in the US present the most likely source of bankruptcy, both private and public. Healthcare costs are increasing at multiples of inflation just as the average salary is shrinking and as employment is falling faster than the GOP's polling numbers. Social Security may not be an issue for many years yet, but Medicare is fast approaching a critical point where, between the needs of an aging population and the skyrocketing costs of preserving that population's health, it will be unable to meet the need.

Indeed, the pressures of keeping healthy under the US system are becoming so bad that medical tourism is fast becoming the avenue of choice for anyone facing major medical procedures. Walking with Ghosts has a fascinating projection on how many US citizens are projected to seek medical care overseas, not merely for the sake of the novelty of travel involved but also to save considerable expense. Should this trend progress much further, as the costs of healthcare abroad present an increasingly small fraction of the costs of the same care in the US, the healthcare system will either fail utterly - a tragedy for any nation - or outsource such procedures as a matter of course - which would deprive the US of major healthcare talent and needed tax revenue, producing a like result.

Under these circumstances, substantial review of US healthcare policy is not just a necessity but a mandate.

The recent step taken by the Congress - to include a new healthcare bill in the current budget legislation as part of the reconciliation process - is therefore most necessary, particularly if the long-term health of the US economy and the federal budget are to be maintained along with the long-term health of the US citizenry.

Carl's suggestion, that this is a less-than-usual method of handling such legislation, and that this is a substantial effort on the part of the federal government, is well taken. And were there a rational opposition party in place to advocate for a more appropriate or effective solution it would have substantial weight.

Unfortunately, the current crop of GOP congresspeople seem committed to opposing the Obama administration, and the Democratic majority in Congress, on every initiative and proposition. The level of spite and malice involved in their unthinking nay-saying is palpable. One need look no further than the initial budget debate to see proof: in response to a dense, carefully calculated budget proposed by the Democrats, the Republicans produced a couple dozen pages of theoretical waffle with not one single quantifiable alternative proposal to present. The recent kerfluffle with Somali pirates is equally indicative: no action taken, deferred or prevented has been met with anything but derision, and many condemnations overtly contradict the others. The GOP has indeed become the Party of No, squealing like a small child who has just discovered its new favorite word and ignorant of the meaning or consequences of its use.

Faced with circumstances like these, and able to present a majority government in both branches tasked with enacting legislation, the Democratic party has little choice but to use the methods available to it. If that means bypassing the irrationality presented by the opposition, then that is obviously what must be done to achieve progress.

I know too little of the new healthcare initiative to comment intelligently on it at this time. However, I know more than enough of the current system to say with conviction that it is well and truly broken, perhaps irrevocably. If healthcare is to remain a resource available to the citizens of the US it must be rethought substantially, and rethought soon. Should this new programme be at all productive I believe it worth the risks. And swelling the federal bureaucracy to achieve that, after the lessons of the last twenty years, is far more easily remedied than might be thought: the only uncertainties are in how that reduction would be accomplished and whether the resultant costs are worth preserving the small-government ideal.

UPDATE: As to the "radical departure from congressional precedent" Carl mentions, ThinkProgress has an effective rebuttal.

About The Healthcare Debate

The Atlantic has an interesting commentary on US healthcare, and why it's so expensive. The author(s) list(s) three reasons for the costs:

1) We pay more for our medical services. But though the pharma industry is important, the real action is in wages. Our medical personnel cost vastly more than their counterparts abroad in almost every category.

2) We consume more services. Americans get shiny new facilities--my British colleagues once derisively commented that American hospitals are "like hotels". American hospitals don't have open wards for almost anyone. They staff at very high levels. Doctors conduct an inordinate amount of tests. We use an expensive machine rather than watchful waiting. And often, those expensive machines catch conditions that never would have turned into anything, which we then treat. Natasha Richardson probably would have lived if she'd had an accident here, because doctors would have done a cat scan, and there would have been a Medevac helicopter available. That's tens, maybe hundreds of thousands of dollars to save a single life.

3) There are inefficiencies. I don't mean "compared to other systems"--every system has some screwed-up illogicality that costs it money and makes patients worse off. But compared to what we could have. For example, Medicare pays for procedures, not wellness, which means that there's a chronic undersupply of geriatricians, because the specialty isn't particularly well paid even though the nation's largest healthcare provider is specifically designed for old people. This is madness. But every real-world system that has attempted to pay physicians for wellness has ended up giving up in disgust.

I can't disagree with the reasoning within the scope of the argument, but I do think there are factors the article does not consider.

1) External cost factors are not considered. Part of the reason healthcare professionals earn more in the US than elsewhere is that, in comparable economies, there is a stronger social safety net which affords a shield against catastrophe to the worker and more comfortable retirement for those who reach that point. Without that, the uncertainty of living in the US demands of the healthcare professionals (as it does of us all) higher compensation in order to protect themrselves against the unforeseen while in the workforce and poverty once out of it. This in itself is not a bad thing; however, the increasing inability for public sources to keep pace with the costs of living makes that demand all the more imperative.

2) Healthcare professionals in the US face substantially higher insurance rates, particularly for malpractice coverage, than their peers in other industrialised nations. This is anecdotal to those not in the profession or in academia, since resources on specific rates is difficult to find. However, the evidence that is available is staggering: there are multiple reports like this one of physicians leaving the country to find more affordable coverage, for example. And two studies, one by Dartmouth College and one by the advocacy group Americans for Insurance Reform, indicate that premiums in the US have continued to skyrocket in spite of the fact that payouts have either remained constant or declined, and in spite of the fact that state after state has enacted so-called "tort reform" designed to make those premiums lower by reducing the payouts. A telling quote appears here:

"Going into 2007 you're going to see very aggressive pricing as these companies have boatloads of cash. They're going to go out and spend it. That spurs the cyclical market of 'we're back to competition,'" [Richard "Rick" W.] Mortimer [vice president of HealthCare Professionals' Insurance Services] said.

Yet instead of pricing more affordably, the carriers seem to have increased their rates instead. As recently as 2004, those increases were somewhere near 100% as this item shows.

3) The insurance market in the US is a for-profit sector, and those companies offering coverage are doing so to make money for themselves and their shareholders. This is not to say that private, for-profit insurance is a strictly US phenomenon; however, the remainder of the industrialised world relies on public programmes first and retains a for-profit sector as a niche market, while the US takes a nearly inverted approach. As both the AIR and Dartmouth studies indicate, the industry profits from premiums have improved dramatically of late. Both studies imply that the increased premiums are intended to offset bad investments by the companies.

Briefly: a private insurer essentially charges a fee to guarantee that a related loss by the covered will be honoured, and invests that fee speculatively to provide the means with which to honour a claim; as the investments intended to fund claims shrink, premiums should rise proportionally. This is both a strength and weakness of the private model: the private insurer is more likely to have the resources to honour a more substantial claims, but is vulnerable to the markets in which it invests and is more inclined to aggressive pricing than a public or non-profit alternative which would only seek to break even rather than show a profit - a profit that, in the recent Wall Street mindset, should not only remain stable but regularly and predictably increase.

The problems that arise from articles like the one in the Atlantic stem from analysis of the subject in a vacuum. Without the related factors, such as overall costs of living, retirement and safety net investments, and analysis not only of the healthcare industry's own behaviour but that of the individuals and industries that (presumably) serve that industry, and then of the motivations and impediments placed on them, the question cannot be accurately answered, or even truly effectively addressed. The Atlantic article highlights some very valid points about US healthcare - but it misses enough to make its argument far less than convincing overall.

The Net Yield Of Self-Regulated Business

One of the goals of the GOP in recent years has been less government regulation. The theory goes that businesses wouldn't intentionally market a defective product and that an informed worker or consumer can make his/her own decisions on what's best without a public agency providing verification. Regulation adds costs, slows innovation and stifles growth - all so that people can be lazy and not do their own homework.

As with much of the rest of the Conservative thought, this might have been reasonably accurate a century or so ago, when consumer goods were produced domestically and their raw materials more commonly known. Today, though, most consumer goods are produced far from US shores often using components indecipherable to anyone without an advanced degree in chemistry. The US "consumer" is working harder than ever (assuming in the current environment s/he is still employed) and has ever fewer hours to do the necessary research. What research is possible is often limited to the news outlets (disinterested in product safety investigation unless the public bodies take note first), the local library (not always a good resource for the kind of scientific investigation required) and the Web (which is as full of misinformation as it is of industry-funded - and hence biased toward the products - studies). And businesses continue to cut corners to maximise profits without regard to consumer safety, while the regulators responsible for monitoring them sit idly by.

Two cases in the recent news highlight how difficult it is for anyone to do the requisite homework, and how ineffective public regulation (after years of Conservative neglect) has become. The first is an item from North Carolina about a company that produced and shipped contaminated syringes for health care; the second is about an Indian pharmaceutical giant that sold drugs on the US market after falsifying its testing.

In both instances the companies bypassed responsible production methods and took shortcuts with their products. In one the producer knowingly and deliberately falsified its test data to verify its product was safe. And in both cases the authorities were slow to respond.

These cases, had they been left to the "consumer," would have required many hours of investigation, either on the Internet or poring through company records, scientific studies, infection rates and pharmaceutical production procedures, many of which are written in dense business or medical jargon not common to everyday language. The consumers would have been more often than not unable to make the journey to a library or incapable of Internet research, since many of them would already have been in hospital. And the products would have been dispensed by physicians and medical staff who are by definition the local authorities on such things whom the populace is encouraged to trust.

In each case, the company went to some length to conceal its misdeeds. Ranbaxy Laboratories, the generic drug maker, went to the trouble of producing falsified test results. AM2PAT, the syringe maker, relabeled its product, falsified records and rushed its production. Neither of these examples illustrate responsible production or care for the end user of the product.

The FDA, the regulatory body responsible for the safety of both products, was (at least according to the news items) apparently trusting of the businesses' processes and statements and inattentive to the actual product. The Ranbaxy case is particularly disturbing, as the FDA noted the discrepancies for three years before taking action:

Since 2006, FDA investigators at the Paonta Sahib plant have turned up reams of laboratory tests that were inaccurate or missing information. In some cases, the company refrigerated samples of drugs that were supposed to be tested after being stored at room temperature or higher to demonstrate their shelf life, [FDA compliance director Deborah] Autor said. Other tests that were supposed to be performed over a period of months to measure whether a drug lost potency over time were taken on the same day or within days.

Investigators also discovered laboratory records signed by employees who were not present when testing took place, she said.

FDA inspectors knew as long as three years ago that Ranbaxy's product was not adequately tested, and the lack of product verification was a conscious business practice. Yet for those three years the FDA remained silent: it took no meaningful action until last September, and even that first (partial) sanction appears to have been inadequate.

Phony medicine has been with society for millenia. Only comparatively recently, though, has the state seen it fit to regulate medicinal products. The scandals associated with patent medicine of the late 19th and early 20th centuries awakened society to the risks associated with many such products. The potentially harmful effects of addiction - such as with early cocaine-infused Coca-Cola - also played a part in this concern. The FDA, an end product of these concerns, has long been tasked with ensuring the safety of such products. These two examples are a fair illustration of what can happen when, starved of funds and obstructed in its mission by Conservative hands-off policies and funding decisions, it fails to do that.

It may be true, as Conservatives claim, that testing and regulation are cumbersome to business. The State, however, is not in the business of promoting industry at the expense of its populace: both domestic producer and consumer need to have adequate protections in order to safeguard society as a whole. And it is clear that business, if left unattended, will protect its shareholders and profits ahead of its customers.