Monday, March 3, 2008

Gorman on Health Care Costs

The February 29, 2008 Rocky Mountain News published the following OpEd by Linda Gorman on the real source of rising health care costs:
Government, regulations drive up health costs
Linda Gorman, Independence Institute

I've got to say that the Feb. 25 editorial, "The surging tide of health-care costs," broke new ground for me in health-care policy. "The popular Medicare program... ." First time I knew that we had data letting us assess whether something that was virtually mandatory and without any substitutes, unless one is very rich, is "popular."

Then there were the factors cited by the editorial as driving health-care cost increases: "an aging population, boomer retirees, advances in drugs and medical technology." Never mind that the boomers are the aging population and so shouldn't count twice; advances in drugs generally save costs. So does a lot of new technology: MRIs are a whole lot cheaper than exploratory surgery, for example.

I guess the implication here is that to cut costs we should go back to the 1930s: put people in beds and provide lots of nurses to take pulses and temperatures without any medical devices or new drugs. Costs would go down.

The literature actually suggests a bunch of other major cost drivers — excess regulation is estimated to account for about 10 percent of U.S. national health spending each year. The spread of public insurance programs including the expansion of Medicaid/SCHIP also likely increases costs. Rising incomes are a huge factor. Wealthy people consume more health care just like they do more transportation, housing and education.

The spread of third-party payment, which has reduced consumer out-of-pocket expenses to all-time lows, is likely a big factor in the cost increase.

Finally, there's the line that "And if private Medicare plans become more popular, that too may increase costs." The embedded assumption here seems to be that private equals higher cost. This often is not the case in the real world.

Linda Gorman is director of the Health Care Center at the Independence Institute in Golden.