Counterparties: Can America’s doctors cure the deficit?

By Ben Walsh
February 21, 2013

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America’s cranky, debt-scolding grandpas have missed the mark. We’re not the first to say it, but to the extent that the national debt is even a problem, it’s a health care spending problem.

The good news is that health care inflation is slowing. Recent data show that US health care costs grew 3.9% in 2011, matching 2010 and 2009 for the lowest rate on record. (Even Alka-Seltzer is getting cheaper).

The slowdown is particularly acute for government-run Medicare and Medicaid, where the Congressional Budget Office’s cost estimate for 2020 is now $200 billion lower than it was a couple of weeks ago. That’s a savings of about 15%. It’s unclear exactly why, but David Cutler and Nikhil Sahn write in the Journal of the American Medical Association that slower price increases and falling administrative costs — remember the hyped electronic medical records movement? — are likely drivers.

The bad news comes in the form of a 24,000-word article by Steve Brill, examining how medical treatment is priced in America, particularly for the uninsured. Brill exhaustively catalogues incidents like a $21,000 emergency room bill for heartburn, and diabetes testing strips with a 3,330% markup. No one writes smart responses to an article of this length in a matter of hours, but for the time being, here are three things to remember as you make your way through Brill’s article.

Firstly, Americans pay a lot more for healthcare than comparable countries. This spending accounts for 18% of US GDP — a number so large that it’s been called the equivalent of an 8% VAT. Secondly, anecdotal discussion of consumer pricing in industries with large and complex cost structures can be misleading. The cost of the aspirin a doctor hands out in the ER includes not just the cost of a single pill, but also the operating costs of the institution that delivers it, and that cost may be partially or fully covered by insurance — or the hospital itself. Thirdly, if we all knew the markup of every product we purchase on a daily basis, the percentage of Americans living on communes would increase drastically.

The much-discussed healthcare cost curve does seem to be bending in the right direction. The question is whether it’s bending enough — and whether the private healthcare industry can replicate the public sector’s savings, while improving care and extending it to more people. — Ben Walsh

On to today’s links:

Congress is about to do what it does best: hurt the economy by failing to do its job – NYT
The sequester is “another manufactured, self-inflicted, completely preventable crisis” – Charles Blow

America’s awful market for young scientists – Atlantic

“Culture” is just a lie of “the monied, celebrated, nuevo-social, 1% poster children of the startup life” – Shanley Kane

The Fed is back to disagreeing about whether it should do anything to lower unemployment – Binyamin Appelbaum

Why should taxpayers give banks $83 billion per year? – Bloomberg
You can’t just make up a number for the TBTF subsidy – Matt Levine

The new top stock for hedge funds is none other than AIG – Business Insider

“Guess Which BuzzFeed Piece is An Ad” (A post sponsored by Andrew Sullivan subscribers) – Andrew Sullivan

New Normal
Walmart blames its lack of customers of Americans waiting for delayed tax returns – WaPo

7 reasons to ignore annoying people who say coffee is bad for you – Popular Science

Jamie Dimon is confident that his head is big enough to wear two crowns – NY Post
Hank Greenberg is… the most interesting man in the world (according to Hank Greenberg) – John Gapper

Citi chairman against breaking up Citi – WSJ

Pinterest just raised $200 million at a $2.5 billion valuation – All Things D
The fight over what happened in Living Social’s $110 million down round – Dan Primack

Right On
There is nothing intelligent to be said about gold – Cullen Roche

Ex-Morgan Stanley CEO John Mack is selling his NYC apartment for $22 million – Curbed


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It’s pretty ridiculous an article about health care finance, of any length, fails to mention DRGs. That is pretty much the reason for the insured/uninsured cost structure.

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