New Gov’t Report Demonstrates Superiority of Private Sector in Controlling Health Costs
by Morgen RichmondThe Centers for Medicare & Medicaid Services (CMS) released their annual report this week on total healthcare spending in the U.S. for 2008. To the limited extent that this release was even reported, the headline was that the growth in healthcare spending “slowed” from the prior year. From a growth rate of 6% in 2007 to only 4.4% in 2008. This in fact represented the lowest rate of growth since the CMS first started reporting this data in 1960. Given all the hyperbole about exploding healthcare costs this past year, this would seem to be wonderfully good news, worthy of national media attention. Might the cost curve be bending down (gasp) without government intervention?
Not surprisingly, media coverage of the report – and even the press release from the CMS itself – convey a less positive interpretation of the underlying data. By focusing on the fact that healthcare spending as a percentage of GDP continues to rise (if only slightly), from 15.9 percent in 2007 to 16.2 percent in 2008. And by attributing the decline to the economic downturn, implying that it is only temporary, even though the co-author of the report acknowledged that “health-care spending is usually somewhat insulated from the immediate impact of a downturn in the economy”.
Why the glass half-empty view? I believe the answer can be found in this accompanying statement from CMS Director Jonathan Blum (emphasis mine):
This report contains some welcome news and yet another warning sign. Health care spending as a percentage of GDP is rising at an unsustainable rate. It is clear that we need health insurance reform now.
Keep this last statement of Mr. Blum’s in mind. Because the CMS press release and the media have buried the most noteworthy aspect of the entire report. A simple, compelling fact that represents a clear warning of the grave financial peril we face if the Democrats succeed in passing ObamaCare.
Because in a year where the growth rate in overall healthcare spending dropped by an unprecedented amount, federal spending on Medicare and Medicaid actually increased dramatically from the prior year.
Medicare by 8.6% in 2008 compared to 7.1% in 2007, and Medicaid by 8.4% compared to 6.1% in 2007. And Federal spending on the Children’s Health Insurance Program (SCHIP) increased by an even greater amount (13.4%).
In other words, the reduced growth rate in healthcare spending for 2008 was entirely due to reduced spending in the private sector. Which upon reflection really comes as no surprise since the private sector by its very nature must respond and adapt to market dynamics. As long as it has the flexibility to do so, unimpeded by government regulation.
The federal government on the other hand is impervious to the business cycle, with no institutional or political incentive to reduce spending. As evidenced by the obscene and unhindered growth in the federal bureaucracy over the past 70+ years.
Given the ever-increasing national debt ($12+ trillion and counting), and with nearly $90 trillion (!) in unfunded Medicare liabilities, why, oh why, are we on the verge of having the federal government assume responsibility for providing healthcare for 40+ million more Americans? With 15 million additional people fully covered under Medicaid and another 26 million heavily subsidized by the government in the new insurance exchange. All at an incremental annual cost approaching $200 billion by 2019 according to the CBO. (A number, I suspect, which will be much higher by then.)
Have our leaders in Washington completely lost their minds? Is this why “we need heath insurance reform now”? So a federal government which has never in history demonstrated one iota of ability to reign in spending can permanently add another 40+ million people to federal entitlement programs. This is the silver bullet necessary to reduce costs? Really??
It defies logic. It defies evidence. It’s completely preposterous.
It is obvious what will happen to overall healthcare spending when the entity least able to control costs assumes a greater share of it. An entity which is politically beholden to a growing class of people dependent on the government for health benefits. The federal budget will expand dramatically, and with reduced private sector funds available for investment, the pace of healthcare innovation will slow and overall costs will skyrocket. Ultimately drastic government rationing will be the only thing which will prevent a total collapse of the entire healthcare system.
As the CMS report demonstrates only the private sector has the inherent incentive and flexibility necessary to reduce the growth in healthcare spending. Through innovation and just good old-fashioned competition. A point which is startlingly reinforced by yet another report ignored by the media, from prominent economist and Obama healthcare adviser David Cutler.
The reckless and self-serving politicians who are most responsible for this coming disaster are likely to pay a heavy price. As will we all unless we can find a way to halt or reverse the most damaging parts of this legislation before it goes into effect.
The future of our nation and our very freedom depend on it.
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33 Comments
This can be good news if the numbers support it. What we need to know is the numbers of participants vs the dollars spent. Until that can be brought forth this is just more data. Was the SCHIP for the same, more or less participants? That will be telling. As will the private insurance and medicare numbers. Who can mine this data?
All you have to do is look at your local politicians to know who it works out.
Reckless out of control spending in order to buy votes. That's what America has become.
Thank you for a timely article. Yes, private sector competition is the way to go. Proof? Just puchased a pricey medical item, a travel nebulizer (for asthma), for $250 from an online supplier compared to the $450 I paid for the exact same thing from a local supplier in 2000.
hmmm… something smells fishy about the timing of this report, and a few comments by some of the D's. i wonder if the groundwork is being laid for this whole health care bill to fail?
So why is Pelosi aka/Fairy Godmother /s saying she is punishing the insurance companies? Better question; why aren't we hearing a peep from the insurance companies?
"unless we can find a way to halt or reverse the most damaging parts of this legislation before it goes into effect."
It will take an aggressive approach to unwind a farction of the damage they have wrought.
Many illegals went home when the jobs in this country declined. This is why there was less spent on healthcare by the government. It is all connected.
I don’t need a report to tell me that (though the left obviously does) with a few off limits exceptions you would have to be one sorry organization to get outperformed by the Government.
They get a windfall of all the youngsters who will have to purchase insurance and are usually very healthy.
Same as Global Warming, don't let the truth get in the way of the agenda.
Well said!
Hang on. Give the democrats a day or two and they will turn this into a crisis too.
It doesn't matter if EVERYONE in this country has insurance, if you have a huge demand for care and a limited amount of doctors to provide the care, the price of the care will continue to rise and the supply will decrease. What are these idiots thinking? I wonder if the cost to the states for the expansion of Medicaid is included in the healthcare price tag? The Federal Gov. wants to expand states Medicaid programs for lower income people, that's their BIG fix for the healthcare system. It's getting to the point that I can hardly read the news, everyday it's something new, a new tax, EPA regulation, CA farmers experiencing drought because of a minnow, terrorist attacks, Cap-N-Trade, healthcare, TARP, Auto bailouts, Stimulus, Omnibus, Supplemental Spending, Raising the debt ceiling, the list could go on and on!
Sincerely,
Sick and Tired of Washington B.S.
If they shove this massive piece of garbage onto the American people, there just might be enough anger to go around, to get them ALL, including the President, OUT of Washington!! It's UN-CONSTITUTIONAL to FORCE the American people to buy ANYTHING!!! There are going to be those (like me) who are going to get caught in the middle of this blunder…make too much money (by the government's standard!) to get in on the 'free' (which I won't anyway…But at the same time cannot afford $800 a month for the insurance….I would rather go to jail!!!
Government run health care is not about health care or cost savings. It is about power and money for the government.
Do you wonder why Washington acts this way? Look in the mirror. Someone said they're buying our votes…well..they couldn't be bought if they weren't for sale. Why are healthcare costs skyrocketing? Look at obesity…children especially…video games have replaced kickball. Both parties spend money like it's going out of style…republican presidents (Bush II, and Reagan) have the biggest runups in debt in modern day presidents….they spend it on war, or arms races (see the cold war). Democrats on social programs an other legislation.
What ails America is not in Washington folks, it's in the mirror…where are our priorities? Blogging, Twittering, Facebook, "getting ours" and "ignoring the white elephant in the room" This country talks about old fashioned American values, but it's all talk, we want everyone else to live them…
Until we face the problem…you…me..all of us…it's going to be the status quo…and you can't blame washington for that…you have a tool…it's called a vote…yet barely better than 40% of us use it…shame on us…all of us…
Obama will be talking to the unions next week about the high value plans. They will mange to screw that up to the point that the high value plans will no longer be offered, thereby decreasing tax revenue and making this monstrosity cost even more.
I have more on it at http://theillinoisguy.wordpress.com/2010/01/08/ob...
We needed the government to tell us this?
Having come from the private sector into government some time ago, I'm still dumbfounded when a co-worker, or some study announces some "newly discovered" practice or procedure that the private sector has known about since the Egyptians invented double entry bookkeeping.
Vast hordes of consultants, once they've exhausted work plans and shticks in the private sector, know that they can continue milking them for years selling them to the government by showing lists of citations from private sector companies that adopted their practices, not telling their gullible sales targets that the private sector has moved on to something that works better.
Government is generally a cocoon harboring unimaginative clerks who would rather take their knocks from those they are supposed to serve by slavishly adhering to procedures no matter how illogical they may be applied to a relentless stream of novel situations, rather than take their knocks at evaluation time for having broken with policy and procedures to solve problems.
You may ask why I remain. Well, it seemed like a good idea at the time, and I've got these tin handcuffs on and can't leave for much greener pastures until I collect.
New Gov’t Report Demonstrates Superiority of Private Sector in Controlling Health Costs by Morgen Richmond:
Loved the article, but it should not matter because no politician will listen anyway! We've learned it's all about them and not us!
I want our Politician's Health Policy or nothing! Oh, I got that wrong, didn't I, because we're their servants!
"Health care spending as a percentage of GDP is rising at an unsustainable rate. It is clear that we need health insurance reform now."
Liberal thinking is riddled with such non sequiturs.
Ask a liberal to name one product or service that went up in price when subjected to the free market, and don't hold your breath waiting for an answer, because free markets always bring prices down.
Government intervention inflates prices (look at the explosive growth of the price of college)
Stand with the Heroes, Fight the zeros!
http://westernhero.blogspot.com/
Sunshine Connie – your question is exactly correct. The reduction in overall private sector spending is welcome, but without knowing how it relates to the amount of actual healthcare produced, it is hard to analyze. That said, we all intuitively know that government is almost always poor at spending efficiency, certainly worse than the private sector. Education is a great comparison. Costs always rise because there is no incentive for educational institutions to control their costs when the government is always picking up tuition.
I liked it better when the doctor drove 20 miles of rutted dirt roads to see about a sick kid and took a chicken home as payment.
Go read the report. "The National Health Expenditure Accounts (NHEA) are the official estimates of total health care spending in the United States"
http://www.cms.hhs.gov/NationalHealthExpendData/0...
thanks for the link although I'm not sure it will actually answer my question. To greatly simplify, if dollars spent on say, apendectomies, decreased, did it do so because there were fewer procedures or because there was some underlying reduction in the cost of those procedures. If someone was able to produce scalpels more efficiently and passed the savings along . . .
This may not be a particularly realistic example, but does illustrate change in dollars spent does not necessarily equate to real reduction in costs. My point is that government almost never attacks cost reduction (the $8,000 toilet seat the pentagon once purchased.) Government typically does not look after your or my tax dollars to be well spent.
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When Rush Limbaugh got out ot the hospital recently, he paid cash for all his medical bills, and saved 30% because the hospitals and doctors didn't have to deal with filing insurance claims. Not granted most of us don't have the financial resources to pay cash for our hospital bills, but there are other payment options. Sure insurance really helps those of us who need repeated or long term hospitals stays or expensive procedures, but imagine being able to save ~30% from bypassing insurance. It seems to me that this is one area that could stand to be fixed which would save huge dollars.
I would take a best guess estimate that because of 10% unemployment, the cost has gone down because the normal claims aren't there anymore. So the insurance companies did spend less.
I have worked for TennCare and Texas NHIC with about ten years of work documenting those State Medicaid/Medicare systems. Hospitals and Doctors because of the low payment from hte government, raise the prices for services of the privately insured. So this should also be added into the effectiveness of the private sector. I can tell you that there is no incentive to cut costs or to save money in any Medicaid or Medicare system. States make a lot of money off of the inefficiencies of both.
So you know first hand that government healthacre does not work. TennCare started in the early 90's and every other year they have to cut the size of the program. You can't give people free healthcare b/c they abuse it. In Memphis we have The Church Health Center, which was founded on doctor's volunteering their service and time. If you need to see a specialist, they will refer you and your appointment will be based on the severeness of your illness. The plan cost $45 a month and if you have to be hospitalized, you go to Methodist University Hospital (where Steve Jobs had his surgery) for free. The MemphisPlan currently covers over 47,000 peopleand you do have to wait longer, but you DO get care. If other cities adopted this program wouldn't that help put a dent in our healthcare problems? All options should be on the table…..
[...] Richmond of Big Government points out a story that received very little coverage this week in the media. It had to do with a [...]
What the author fails to notice is that unemployment in 2008 caused a million people to drop private insurance and get on Medicaid, and the Fed took on a larger share of Medicaid spending than normal to help the states take the hit. So, when unemployment moves people off private insurance and onto public insurance, you get a drop in the former and a rise in the latter. Hardly a reason to tout private sector innovation.
What a surprise. Decisions made for economic reasons are more economically efficient that decisions made for political reasons. But still, we are rushing to turn health care over to the political system. Unfathomable.
[...] OOPS!! What A Shocker!! Private Sector is Better at Controlling Costs than ObamaCare! [...]
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