Part II
No debate on health care can be complete without a discussion of physician and drug costs. In a Congressional Research Service report dated September 17, 2007, the following table shows the compensation for specialist and general physicians for five countries whose health care we are often compared to (Japan was not listed in the report).
Country - Specialists - General Practice
United States - $230,000 - $161,000
Australia - $247,000 - $ 91,000
Canada - $161,000 - $107,000
UK - $150,000 - $118,000
France - $149,000 - $ 92,000
Germany - $ 77,000
These figures were adjusted for cost of living and normalized for lifestyle opportunities. On average, we pay our physicians 50% more than other developed countries. However, there are some mitigating factors that cause this. First, the cost of education in this country is quite a bit higher than anywhere else in the world. In France, for instance, I’ve been reading that the cost of medical school is only 150 Euro and subsidized heavily by the government. It’s not surprising that the competition is very fierce to get in for this nearly free education. In Canada, a Quebec resident going to medical school in that province does attend for free.
In the U.S., the typical cost of medical school is $150,000 to $300,000. If you are a medical student graduating with a debt of $200,000, then you will need to make sufficient salary to retire the debt. To pay this off in 10 years at 9% interest rates means our physicians start out needing $30,000 a year salary just to cover this debt. (I used an interest rate of 9% in order to give the student a slight return on his medical school educational investment).
In addition, we have the most expensive medical malpractice insurance costs in the world. Without major tort reform, it will mean physicians will have to continue to carry very expensive malpractice insurance to cover the risks of litigation. The cost of premiums varies greatly depending on the type of specialty and which state you are in. Premiums range from $50,000 to $200,000 per year. While a practice may pay some or all of these premiums as part of the benefits offered to its physicians, it does add to our overall medical costs.
It is my belief that these two areas alone make up the difference between the cost of our physicians and those in other developed nations.
One way to keep physician costs down would be to greatly subsidize their education. Graduating more physicians would increase competition and help to keep prices in check.
The second thing would be to cap litigation claims. Under a universal health program, ongoing care would be provided so there would not have to be any payments for treatment under any litigated settlement. The only damages left would be for pain and suffering, and loss of income. What I would suggest investigating is a formula that provides long term disability insurance coverage for the patient to cover their loss of future income, and a cap on pain and suffering in the range of $250,000 to $500,000.
Another area that needs review is what we pay for drugs in this country. Recent studies find that most developed countries pay about 70% of the price we pay for the same on-patent drugs. For generic drugs we pay about the same or a bit less than other countries.
Also, the number of drugs prescribed in other developed countries is about 40% less than in the U.S. This suggests that the perks many doctors receive from drug companies are causing a conflict of interest and the public is paying for it. It seems obvious that we need to have the government be able to negotiate drug prices, and to provide better oversight on the relationships between doctors and drug companies. It is also my opinion that fear of litigation also causes an excess of ordered tests and drug prescriptions as an anticipated defense in the event of a malpractice claim.
There is a lot of overpricing and abuse in our health care industry. There have also been numerous reports of massive amounts of fraud in the Medicare program and the cost to taxpayers is in the billions of dollars. Government oversight and enforcement is woefully inadequate. Any health care bill must provide for increased personnel for audit review and fraud investigations. If there has been a fault in Medicare it is in this area.
My final posting on health care is my solution to the health care crisis.
Tuesday, November 24, 2009
Health Care - Defining the Problems
Part I
There is a great debate going on about the state of health care in this country. There are few who would agree that our health care system and how we cover our citizens is just fine as it is. Instead, it seems the debate is trying to figure out what’s broken and what needs fixing.
Often, we hear arguments against universal health care, which is offered by most of the developed world, versus our fee for service – private health care insurance model. Many believe that our model produces the best health care system in the world. However, the data doesn’t support that claim.
Let’s start with some facts so we can try to identify the key issues. According to the United Nations World Population Prospects 2005-2010 report, the life expectancy and infant mortality rankings of the U.S. when compared to other key nations that are often used to measure our health care system are quite illuminating.
Life Expectancy - Infant Mortality
1. Japan - 3. Japan
5. Australia - 12. France
10. France - 14. Germany
11. Canada - 17. Australia
22. United Kingdom - 22. United Kingdom
23. Germany - 23. Canada
38. United States - 33. United States
Others notables ahead of us:
30. Costa Rica - 10. South Korea
33. United Arab Emirates - 12. Slovenia
34. South Korea - 28. Cuba
37. Cuba
However, according to the Federal Interagency Forum on Aging-Related Statistics when we in the U.S. reach the age of 65, we have an above average life expectancy and rank 9th on a list of 27 countries. I pulled the same 27 countries from a World Health Organization (WHO) study which covers all ages and on that list we rank 21st out of 27. Could this improvement from 21st to 9th be because at 65 we are all universally covered by the government run health program known as Medicare?
However, even when we reach universal coverage status, we still find Japan (#1), and France (#3) ahead of us in the 65+ life expectancy rankings. Even so, this report shows the benefits of universal coverage. When everyone is covered we moved from 21st to 9th place. We even surpassed the UK (#14) and Germany (#15) in the 65+ rankings. (Canada and Australia were not in this report, so I don’t know how we did against them).
What this suggests is that universal coverage, 100% access to health care, is one of the keys to improving life expectancy and infant mortality.
We often hear about private enterprise and the free market as the most efficient method of administering health care. Governments are deemed bureaucratic and inefficient at running any program. Yet according to a report by the World Health Organization (WHO), the U.S. has the worst cost versus care provided in the developed world. We spend more per capita on health care than anyone in the world and yet we rank 37th in health care rankings.
The following table compares where the U.S. ranks in health care expense versus health care quality against other key nations.
Country - Health Expense Per Capita - Health Care Ranking
United States - 1 - 37
Germany - 3 - 25
France - 4 - 1
Canada - 10 - 30
Italy - 11 - 2
Japan - 13 - 10
UK - 26 - 18
Cyprus - 39 - 24
Chile - 44 - 33
Costa Rica - 50 - 36
All of these countries have government run health care programs and they are delivering better health outcomes for a lot less money. Even Cuba, which has a spending rank of 118th, delivers the 39th best health care system. This is only slightly behind the U.S. system, and as noted above Cuba outperforms the U.S. in life expectancy and infant mortality.
It’s clear to me that the lack of universal coverage lowers the ranking of our health care system. The high cost of premiums and the ability of insurance companies to deny coverage for any reason, but especially for pre-existing conditions are the primary reasons for our inability to achieve universal coverage. Thus, it appears that the insurance companies and private enterprise are costing us far more money than we should be paying and it is affecting our ability to deliver the best health care possible.
Compare the table below from data produced by the Organization for Economic Co-operation and Development (OECD) from its 2003 study. (The numbers in parentheses after the country name are the WHO world health rankings).
Per Capita Expenditures Share as %
Country (rank) - Per Capita Expenditures - % Share of GDP
United States (37) - $5,711 - 15.2%
Australia (32) - $2,886 - 9.2%
Canada (30) - $2,998 - 9.9%
France (1) - $3,048 - 10.4%
Germany (25) - $2,083 - 10.8%
Italy (2) - $2,314 - 8.4%
Japan (10) - $2,249 - 8.0%
UK (18) - $2,317 - 7.8%
The average of the seven countries listed after the U.S. is $2,685 per capita and 9.2% as a share of GDP. The U.S. is spending more than double that average per capita and 65% more as a percentage of our GDP for a health care system that ranks 37th in the world. This is outrageous and must be changed. I will further this discussion in my next posting and offer my solutions.
There is a great debate going on about the state of health care in this country. There are few who would agree that our health care system and how we cover our citizens is just fine as it is. Instead, it seems the debate is trying to figure out what’s broken and what needs fixing.
Often, we hear arguments against universal health care, which is offered by most of the developed world, versus our fee for service – private health care insurance model. Many believe that our model produces the best health care system in the world. However, the data doesn’t support that claim.
Let’s start with some facts so we can try to identify the key issues. According to the United Nations World Population Prospects 2005-2010 report, the life expectancy and infant mortality rankings of the U.S. when compared to other key nations that are often used to measure our health care system are quite illuminating.
Life Expectancy - Infant Mortality
1. Japan - 3. Japan
5. Australia - 12. France
10. France - 14. Germany
11. Canada - 17. Australia
22. United Kingdom - 22. United Kingdom
23. Germany - 23. Canada
38. United States - 33. United States
Others notables ahead of us:
30. Costa Rica - 10. South Korea
33. United Arab Emirates - 12. Slovenia
34. South Korea - 28. Cuba
37. Cuba
However, according to the Federal Interagency Forum on Aging-Related Statistics when we in the U.S. reach the age of 65, we have an above average life expectancy and rank 9th on a list of 27 countries. I pulled the same 27 countries from a World Health Organization (WHO) study which covers all ages and on that list we rank 21st out of 27. Could this improvement from 21st to 9th be because at 65 we are all universally covered by the government run health program known as Medicare?
However, even when we reach universal coverage status, we still find Japan (#1), and France (#3) ahead of us in the 65+ life expectancy rankings. Even so, this report shows the benefits of universal coverage. When everyone is covered we moved from 21st to 9th place. We even surpassed the UK (#14) and Germany (#15) in the 65+ rankings. (Canada and Australia were not in this report, so I don’t know how we did against them).
What this suggests is that universal coverage, 100% access to health care, is one of the keys to improving life expectancy and infant mortality.
We often hear about private enterprise and the free market as the most efficient method of administering health care. Governments are deemed bureaucratic and inefficient at running any program. Yet according to a report by the World Health Organization (WHO), the U.S. has the worst cost versus care provided in the developed world. We spend more per capita on health care than anyone in the world and yet we rank 37th in health care rankings.
The following table compares where the U.S. ranks in health care expense versus health care quality against other key nations.
Country - Health Expense Per Capita - Health Care Ranking
United States - 1 - 37
Germany - 3 - 25
France - 4 - 1
Canada - 10 - 30
Italy - 11 - 2
Japan - 13 - 10
UK - 26 - 18
Cyprus - 39 - 24
Chile - 44 - 33
Costa Rica - 50 - 36
All of these countries have government run health care programs and they are delivering better health outcomes for a lot less money. Even Cuba, which has a spending rank of 118th, delivers the 39th best health care system. This is only slightly behind the U.S. system, and as noted above Cuba outperforms the U.S. in life expectancy and infant mortality.
It’s clear to me that the lack of universal coverage lowers the ranking of our health care system. The high cost of premiums and the ability of insurance companies to deny coverage for any reason, but especially for pre-existing conditions are the primary reasons for our inability to achieve universal coverage. Thus, it appears that the insurance companies and private enterprise are costing us far more money than we should be paying and it is affecting our ability to deliver the best health care possible.
Compare the table below from data produced by the Organization for Economic Co-operation and Development (OECD) from its 2003 study. (The numbers in parentheses after the country name are the WHO world health rankings).
Per Capita Expenditures Share as %
Country (rank) - Per Capita Expenditures - % Share of GDP
United States (37) - $5,711 - 15.2%
Australia (32) - $2,886 - 9.2%
Canada (30) - $2,998 - 9.9%
France (1) - $3,048 - 10.4%
Germany (25) - $2,083 - 10.8%
Italy (2) - $2,314 - 8.4%
Japan (10) - $2,249 - 8.0%
UK (18) - $2,317 - 7.8%
The average of the seven countries listed after the U.S. is $2,685 per capita and 9.2% as a share of GDP. The U.S. is spending more than double that average per capita and 65% more as a percentage of our GDP for a health care system that ranks 37th in the world. This is outrageous and must be changed. I will further this discussion in my next posting and offer my solutions.
Thursday, November 19, 2009
Economic News Comment for Thursday 11/19/09
My favorite economic indicator was out this morning and was up again for the seventh straight month of increases. The coincident/lagging ratio is part of a set of three economic indicators, the most famous being the leading economic indicator, which was also up.
The co/lag ratio is one of the best forecasting tools for the arrival and termination of recessions. When the ratio turns down and falls steadily it indicates a recession will start in about six months. The reverse is also true. When the ratio begins rising steadily, it implies the recession will end in about six months.
The current ratio bottomed in March 2009 and began its climb. By June it was clear the trend was higher, and I made the prediction that the recession would end sometime in September, which is six months after the March low. It appears that the recession, in fact, did end around that time.
However, the current economy is struggling to create new jobs and the housing market is still facing lots of uncertainty. The mortgage industry can’t seem to get any traction and seems to be stuck bouncing along its bottom. The difficulties in these two areas appear to be dampening consumer spirits as we head into the holidays.
On the other hand, new orders are rising, and inventories are so low that they are now at a point which should support additional restocking orders. Corporations are lean and mean having cut employees and excess inventories. The result is they are sitting on mountains of cash. Productivity gains have exploded these last two quarters. Historically, they have never been this high without seeing corporations increase employment.
Because of the depth of this recession, the worst economic decline since the depression of the 1930s, it is going to take time for employment to recover. Employment is a lagging indicator and is one of the last areas to recover. The rate of job loss has slowed substantially in recent months but it has yet to turn positive. However, by next spring, I believe we will see new employment growth.
The co/lag ratio is one of the best forecasting tools for the arrival and termination of recessions. When the ratio turns down and falls steadily it indicates a recession will start in about six months. The reverse is also true. When the ratio begins rising steadily, it implies the recession will end in about six months.
The current ratio bottomed in March 2009 and began its climb. By June it was clear the trend was higher, and I made the prediction that the recession would end sometime in September, which is six months after the March low. It appears that the recession, in fact, did end around that time.
However, the current economy is struggling to create new jobs and the housing market is still facing lots of uncertainty. The mortgage industry can’t seem to get any traction and seems to be stuck bouncing along its bottom. The difficulties in these two areas appear to be dampening consumer spirits as we head into the holidays.
On the other hand, new orders are rising, and inventories are so low that they are now at a point which should support additional restocking orders. Corporations are lean and mean having cut employees and excess inventories. The result is they are sitting on mountains of cash. Productivity gains have exploded these last two quarters. Historically, they have never been this high without seeing corporations increase employment.
Because of the depth of this recession, the worst economic decline since the depression of the 1930s, it is going to take time for employment to recover. Employment is a lagging indicator and is one of the last areas to recover. The rate of job loss has slowed substantially in recent months but it has yet to turn positive. However, by next spring, I believe we will see new employment growth.
Monday, November 2, 2009
Economic News Comment for Monday 11/2/09
The ISM Manufacturing Index was out this morning and was reported better than expected at 55.7. (Anything above 50 is considered expansionary). However, the big surprise in the report was the employment sub-index which came in at 53.7, up 7.0 points from last month. It was the first time above 50 in over a year.
In the past 30 years, with over 350 monthly reports in the archives, there have been only 3 times that the employment sub-index has been over 50 and we didn’t create new jobs in the monthly Employment Situation Report which will be released on Friday. At this time, the trade is estimating we will lose between 55,000 and 200,000 jobs in the upcoming report. This may end up being the 4th time in 30 years that we lose jobs with a 50+ reading, but it does suggest that rising employment is just around the corner.
Also in this report, it appears that inventory destocking has run its course and we are starting to restock at the manufacturing level. This should also mean more hiring.
Another indicator is the quarterly productivity report. Much of the gains in corporate earnings have come from cost cutting and employee layoffs. That means getting more out of one’s existing workforce either through lower wages or greater gains in per unit labor output.
Since wages have held steady, it implies that most of the gains have come from increased productivity of the workforce. In the second quarter, overall productivity gains were 6% higher. In the past 30 years, we have never had productivity this high without positive gains in employment growth. Thursday, we will get the first look at productivity growth for the 3rd quarter. Another large gain is unlikely as it is difficult to continue to get this level of growth out of employees on a continuous basis without seeing an increase in employment.
This recession has been the most severe since the Depression of the 1930’s so maybe Friday’s employment number will still show a loss of jobs. However, don’t be surprised if the number fools everyone and shows a positive gain of 50,000. If it does, the stock market will rise sharply.
In the past 30 years, with over 350 monthly reports in the archives, there have been only 3 times that the employment sub-index has been over 50 and we didn’t create new jobs in the monthly Employment Situation Report which will be released on Friday. At this time, the trade is estimating we will lose between 55,000 and 200,000 jobs in the upcoming report. This may end up being the 4th time in 30 years that we lose jobs with a 50+ reading, but it does suggest that rising employment is just around the corner.
Also in this report, it appears that inventory destocking has run its course and we are starting to restock at the manufacturing level. This should also mean more hiring.
Another indicator is the quarterly productivity report. Much of the gains in corporate earnings have come from cost cutting and employee layoffs. That means getting more out of one’s existing workforce either through lower wages or greater gains in per unit labor output.
Since wages have held steady, it implies that most of the gains have come from increased productivity of the workforce. In the second quarter, overall productivity gains were 6% higher. In the past 30 years, we have never had productivity this high without positive gains in employment growth. Thursday, we will get the first look at productivity growth for the 3rd quarter. Another large gain is unlikely as it is difficult to continue to get this level of growth out of employees on a continuous basis without seeing an increase in employment.
This recession has been the most severe since the Depression of the 1930’s so maybe Friday’s employment number will still show a loss of jobs. However, don’t be surprised if the number fools everyone and shows a positive gain of 50,000. If it does, the stock market will rise sharply.
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