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Today’s Economist: Uwe E. Reinhardt: U.S. Health Care Prices Are the Elephant in the Room

March 29, 2013 by Leave a Comment

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Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

Traditionally, the theory driving discussions on the high cost of health care in the United States has been that there is enormous waste in the system, taking the form of excess utilization of care. From that theory it follows that methods of controlling the growth of health spending should focus on ways to reduce the use of unnecessary or only marginally beneficial health care.

Today’s Economist

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Largely overlooked in these discussions has been the elephant in the room: the extraordinarily high prices Americans pay for health care. However, as a group of us noted in a paper in 2004, “It’s the Prices, Stupid,” it is higher health spending coupled with lower – not higher — use of health services that adds up to much higher prices in the United States than in any other member nation of the Organization for Economic Cooperation and Development. Aside from a few high-tech services, Americans actually use less health care and rely on fewer real health-care resources than do residents of other industrialized countries.

Readers who want to get a peek at this elephant in the room should peruse the set of slides published a few days ago by the International Federation of Health Plans, a global network of private health-insurance plans with 100 members in 31 countries. The federation annually surveys prices actually paid for selected health care goods and services in the different countries.

Shown below are three slides from the set:

International Federation of Health Plans
International Federation of Health Plans
International Federation of Health Plans

In most other countries, prices for health care goods and services are not negotiated between individual health insurers and individual physicians, hospitals or drug companies, as they are in the private insurance sector in United States.

Instead prices there either are set by government or negotiated between associations of insurers and providers of care, on a regional, state or national basis. The single prices for other countries shown in the chart therefore can be taken representative of prices actually paid there.

By contrast, as can be seen in the charts, in the United States there is quite a range of prices for the identical good or service.

Ideally, the federation should also have shown the median for prices in the United States. The median represents the midpoint of a frequency distribution; if the distribution of prices is skewed toward either low or high values, the average will be either above or below the midpoint and may not be representative.

Whatever the case may be with the distributions of American prices underlying the charts, it seems clear that the prices for health care in the United States are much higher than they are in other nations. As we noted in the paper cited above, it goes a long way toward explaining why, on average and in purchasing-power parity dollars per-capita, health spending in the United States is so much higher than it is elsewhere in the world.

My explanation for the relative high prices Americans pay for health care relative to other countries is that the payment side of the health care market in the private sector is fragmented, weakening the bargaining power of individual insurers, especially vis-à-vis the increasingly consolidated hospital sector, although other factors, including malpractice premiums, play a part as well.

To endow the payment side of health care with more market muscle, I have proposed an all-payer system based on the models used in Germany or Switzerland or in the state of Maryland. In these systems, government does not dictate prices. Instead, health care prices are negotiated at what Europeans call a “quasi market” level.

Average or median prices aside, however, the federation charts also show that the variation of prices for identical items within the United States – even within a single city – dwarfs the cross-national variation in prices for the same item. That phenomenon has begun to attract attention in the news media only lately.

As Consumer Reports noted in an illuminating article, “Health care prices are all over the map, even within your plan’s network.” The chart at the bottom of the article, based on the Healthcare Blue Book on prices, is especially revealing.

The high variance of health care prices in the United States can be explained in good part by the opacity of these prices. Both government and the private sector have done their best to maintain that opacity.

It is possible to find prices paid by Medicare on the Web, but they are written in code that means something to the providers of health care although little to patients.

Pretend to be a prospective patient searching the Web for Medicare fees. Google “Medicare fee schedules.” At the top of the list you will find this Web site. Try to find the fee for a screening colonoscopy in your area.

If you get frustrated, try this one.

Good luck on your hunt for Medicare fees.

Fees in the private health care sector have been jealously guarded trade secrets among insurers and providers of health care. True, some health insurers now provide their insured members with “cost estimates,” by provider and by major procedure, of what the procedures rendered by a particular providers might cost patients out of pocket, but not full prices. I have found the site for that purpose on my insurance policy very difficult and cumbersome to navigate.

For uninsured patients (also known as self-pay patients) full price information is hard to come by. I tried it again just the other day, calling up a New Jersey hospital and seeking a price for a colonoscopy. After a runaround of several telephone calls, I gave up. I have described the attempt more fully in response to a comment on the previous blog post.

It is truly remarkable that few state governments have made any effort to provide their residents with greater price transparency in health care, as well they could and should.

A report on March 18, “Report Card on State Price Transparency Laws” by the Catalyst for Payment Reform and the Health Care Incentives Improvement Institute gives 29 states the failing grade of F on this score, including New York and New Jersey. Another 6 earned a D, barely passing. Only Massachusetts and New Hampshire earned an A.

With so much carefully guarded and government-shielded opacity on health care prices, it should be no surprise that prices for health care vary as much as they do in the United States, even within small regions and for the same health insurer.

It will not change until citizens make it an issue in political campaigns.

Article source: http://economix.blogs.nytimes.com/2013/03/29/u-s-health-care-prices-are-the-elephant-in-the-room/?partner=rss&emc=rss

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Off the Charts: In World Trade Data, Signs of a Slowdown

February 15, 2013 by Leave a Comment

The accompanying charts show the change in exports and imports of goods in 12 large countries — the industrialized countries in the Group of 7, in addition to Australia and four emerging economies, China, Brazil, India and South Korea. All figures are in United States dollars.

Of the 12, only China, with an 8 percent gain, posted faster growth in exports than the United States. Canada reported a small gain, but the others showed declines. In their local currencies, South Korea and India had gains, but they were erased by the decline of those currencies against the dollar.

Import totals can provide an indication of economic woes, as declining incomes cause consumers to buy less, including fewer items from abroad. Imports fell in Germany, France and particularly Italy. This week, the European Union reported that the euro zone economy declined in the fourth quarter — the third consecutive fall. Germany’s economy, which had been growing slowly, also shrank.

In the United States, imports of goods rose just 3 percent in 2012. It was the second consecutive year, and the sixth year in the last seven, that exports grew more — or, in 2009, shrank less — than imports. Before that, imports rose faster than exports for eight consecutive years, from 1998 through 2005.

The United States runs a trade surplus in services, not shown in the chart, but the trade deficit in goods widened slightly in 2012 to $727.9 billion. That figure is still well below the deficits from 2004 through 2008, before the credit crisis and recession caused international trade to decline rapidly in 2009. The strong gains many countries experienced in 2010 and 2011 reflected a return to more normal levels.

Exports plunged in all countries during the crisis, but the trends since then have varied. German exports in 2012 were 3 percent lower than in 2008, while French exports were off almost 8 percent. Japanese and British exports were about 2 percent higher. The United States, by contrast, reported exports of goods in 2012 that were up 20 percent from 2008, and Brazilian exports were 23 percent higher.

Those gains pale next to those of developing Asian economies. South Korean exports in 2012 were 30 percent higher than in 2008, while China bolstered its shipments by 43 percent. Indian exports were 50 percent higher.

The charts also show changes in American trade with the other 11 countries listed. Exports to most of the European countries fell in 2012, but exports to France rose sharply. France has resisted austerity more than most of its neighbors, something that may have contributed to the rise.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/02/16/business/economy/in-world-trade-data-signs-of-a-slowdown.html?partner=rss&emc=rss

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Money Issues Thwart United Nations Climate Talks

December 5, 2012 by Leave a Comment

Since the process for the United Nations Framework Convention on Climate Change began about 20 years ago, countries have been split into two often-warring camps: the small number of wealthy nations that provide money to help deal with the effects of global warming, and the much larger group of poorer states that receive it.

At a climate summit meeting in Copenhagen three years ago, the industrialized countries promised to provide $10 billion a year in funds for adapting to climate change over the following three years and $100 billion a year beginning in 2020. The short-term money has more or less been raised and spent, although some nations have quarreled over whether it was new money or simply repurposed foreign aid. A Green Climate Fund has been established to handle the money after 2020.

Left unclear was whether money would flow from 2013 to 2020. That is what negotiators from about 190 countries are fighting about here.

And it is a particularly difficult time for the donor nations to find new money. The United States, which traditionally provides about a quarter of such international finance, is teetering on a fiscal precipice, and few in Washington are thinking about finding several billion dollars to help sub-Saharan Africa or precarious island nations cope with drought and rising seas.

Jonathan Pershing, the State Department’s deputy special envoy for climate change, said Wednesday that the United States had “every intention” of finding money for climate adaptation. But he pointedly noted that in the United States, “like most places, the budgeting process is complicated.”

Pete Betts, the principal climate negotiator for the European Union, said that Europe would continue to provide climate money. But he, too, noted, “These are tough financial times, and many states are in difficult circumstances, so we won’t be in a position to state our target for 2015.”

This reticence by richer countries annoys the recipient countries, which see it as avoiding responsibility for decades of uncontrolled emissions that now threaten the health of the planet.

Some, like Brazil, raise legalistic objections that the wealthier countries promised in previous agreements to provide a steady flow of such financing.

André Corrêa do Lago, the chief Brazilian delegate, said, “There is a very different interpretation between developed and developing countries, which is natural because some are giving the money and some are getting the money.”

He said that most developing countries had believed that the roughly $10 billion a year in short-term money would be replaced by a gradual increase until 2020. He said he was sympathetic to the budget problems of Europe and the United States, but he also said that unless the donor countries promised to keep up their support, Brazil and other countries would not allow the negotiating process to go forward.

“If at the end you don’t, it’s a very frustrating exercise,” he said.

The most impassioned voices, as usual, are representatives of poor African nations and of low-lying island states threatened with being swamped by rising seas.

“Please, ladies and gentlemen,” the delegate from Nauru, a Pacific island nation, pleaded to the assembly, “show me on a map which countries you think are expendable.”

Todd D. Stern, the senior American diplomat here, said the United States understood the impatience and frustration of its negotiating partners from the developing world. Addressing the conference on Wednesday, he said that different countries had different abilities to cope with a changing climate and to find the money to adapt. He said that the United States was willing to discuss the concepts of equity and “common but differentiated responsibilities,” terms that carry heavy emotional and historical baggage at these gatherings.

In what was read by many here as a shift in tone, Mr. Stern said that such notions would be central to the outcome of a new global climate change treaty that is supposed to be concluded by 2015 and take effect in 2020 under an agreement reached in Durban, South Africa, a year ago.

“The United States would welcome such a discussion, because unless we can find common ground on that principle and the way in which it should apply in the world of the 2020s, we won’t succeed in producing a new Durban Platform agreement,” Mr. Stern said. “And we have to succeed.”

Article source: http://www.nytimes.com/2012/12/06/science/earth/money-issues-thwart-united-nations-climate-talks.html?partner=rss&emc=rss

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India’s Economic Expansion Slows in Second Quarter

August 30, 2011 by Leave a Comment

MUMBAI — India’s growth rate continued to slide in the second quarter of the year, falling to 7.7 percent, the government reported Tuesday.

The report, which was broadly in line with analysts’ expectations, is likely to put further pressure on Indian policy makers to bolster the economy, which has been slowing since early last year, when it hit an annual pace of 9.4 percent.

Indian leaders have said they would like to push the economy to double-digit growth rates in the coming years. But analysts say that goal looks increasingly out of reach because policy makers have not done enough to improve the productivity of the economy in recent years and because industrialized countries, which are big investors in India, are starting to weaken again.

A slowing economy could also help fuel protests of the kind that paralyzed the government this month.

The social activist Anna Hazare ended a hunger strike Sunday after nearly two weeks, when the Indian Parliament agreed to consider his demand for the creation of a new anti-corruption agency.

Slowing growth in mining, manufacturing and construction accounted for most of the slowdown in the three-month period that ended in June. India’s gross domestic product grew at an annual pace of 8.8 percent in the same period a year ago; it grew 7.8 percent in the first three months of this year.

Many independent analysts are now forecasting that the economy will expand 7.5 percent or less in the current fiscal year, which ends in March 2012. That would be a notable decline from the 8.5 percent growth of the previous year. The government has set a target for 8 percent.

The Confederation of Indian Industry, an advocacy group based in New Delhi, said that to bolster growth, the government would have to overhaul the country’s complicated tax system, ease restrictions on manufacturing and allow greater foreign investment in protected industries like retail and insurance.

“Of particular concern is the slowdown in the manufacturing sector,” Chandrajit Banerjee, director general of the Confederation, said in a statement. “It is extremely important that we are able to push for reforms to enable manufacturing sector investment to move ahead.”

The slower growth should, however, help the country in its fight against inflation, which has been hovering around 10 percent for many months.

The Reserve Bank of India has raised its benchmark interest rates 11 times in less than two years in an effort to bring prices under control. It is expected to raise rates again next month, but corporate executives and analysts say it may now have to consider pausing.

Article source: http://feeds.nytimes.com/click.phdo?i=9a93a403c47a26c831eeeb5a10e5dc7c

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