Monday, May 2, 2011

Our real deficit problem…and why the President's Independent Patient's Advisory Board is the most serious proposal on the table to address it

James Suroweicki, who authors the New Yorker's  "Financial Page," wrote recently that "strange as it may sound, the federal government does not have a spending problem per se."  This assertion may seem crazy in the context of current deficit hysterics, but it's true.  Rather than a deficit problem, Suroweicki continues, what we have is "a health-care problem."
The cost of most budget items typically rises at a reasonable rate, if at all, but the cost of Medicare, Medicaid, and the tax subsidy for employer-provided insurance has been rising much faster than everything else…
Liberal economist Paul Krugman concurs:
We have to do something about health care costs, which means that we have to find a way to start saying no. In particular, given continuing medical innovation, we can’t maintain a system in which Medicare essentially pays for anything a doctor recommends. And that’s especially true when that blank-check approach is combined with a system that gives doctors and hospitals — who aren’t saints — a strong financial incentive to engage in excessive care.
In a study entitled "Keeping Heatlh Care Afloat", Princeton economist Uwe Reinhardt cites several studies that show where a large part of the excess cost in America's health care system has been going:
(I)n 1990 Americans used $390 less in real medical resources per person than Germans did, but spent $737 more on higher prices, $360 more on administration, and $256 more on other forms of overhead…in 1999 the U.S. system consumed $1,059 per person in administrative costs, compared with just $307 in Canada…from 1969 to 1999 the fraction of the total health care labor force accounted for by administrative workers grew 18 to 27 percent in the United States, but only from 16 to 19 percent in Canada.