All about the prices

JAMA had a great article last week on how total healthcare costs have increased over time in the United States. The short version is that it is all about the prices.

I love how Figure 3 presents the data:

Figure 3 Factors relating to healthcare expenditure changes

We should expect to spend more money as the population increased from 1996 to 2013. This is not something I am worried about.

We should also expect to spend more money as the population ages. A simple way to stratify healthcare spending is to split the population into those who can wipe their own butts and those who can not. Those who can wipe their own butt are much cheaper to cover than those who need help. Again, this is something that makes sense to me.

We’ve gotten a little bit healthier. This lowers costs even as we get older. Not smoking is a wonderful thing.

The number services has a point estimate of leading to a decrease in costs although the margin of error does not allow us to say it is a definite source of cost decreases. We’re not using a lot more services now than in 1996.

So far, the US healthcare expenditure story is fairly straightforward, the population is a bit bigger and older and slightly healthier.

The issue is the price per service. Pricing has gone up tremendously since 1996. Concentration has increased, gatekeepers have increased and barriers to entry are real and significant. The policy responses have to be pathways towards lower prices through either administrative monopsy rate setting, reducing barriers to entry (eliminating CON laws, allowing more master level clinicians to practice to the edge of their license), reducing monopoly length and profits, increasing approval speeds or directing more money to narrow networks of lower cost providers.

There are thousands of ways to achieve these goals but this is where health policy on cost control has to go in the future.

7 replies
  1. 1
    Mike J says:

    I take it the broken pharma system also falls in the service price category.

  2. 2
    wvng says:

    Regarding the front-end insurance pricing, the WV Anthem bronze plan that last year had an unsubsidized premium of $850/month (I am 64) has increased to $2200. I assume that is mostly due to Trump’s CSR sabotage. Anthem’s mailing suggests that after subsidy I will pay $1180. I strongly suspect that the subsidy will be much higher, but I haven’t gone to to see yet.

  3. 3

    @Mike J: yes — all sources of hookers and blow

  4. 4
    low-tech cyclist says:

    It is a good chart, once you realize that the roles of the X and Y axes are reversed from what you’re used to.

    And I see it demolishes the conservative bromide that PEOPLE NEED MORE SKIN IN THE GAME because PEOPLE USE HEALTHCARE TOO MUCH and that’s what’s driving runaway health care costs.

  5. 5
    Cranky Old Scold says:

    Forgetting Supply Induced demand. CON should be mandatory and tough. Its failures in the past was because it wasn’t tough enough. Hospitals should be treated as hostile parties to the public’s health. The only good hospital is an empty hospital.

  6. 6
    sherparick says:

    Dean Baker is to me the go to expert on this subject. In addition to his suggestions below, I would add making foreign treatments reimbursable under Medicare and Medicaid and going strict anti-trust and anti-price fixing in the medical community.

  7. 7
    jl says:

    Thanks for an interesting post and link to the article.
    This research provides more support for Uwe Reinhardt’s emphasis on prices that are too damned high as a key issue in US health care.

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