Are healthcare costs really skyrocketing?

This is crossposted from mathbabe.org.

Yesterday we had a one-year anniversary meeting of the Alternative Banking group of Occupy Wall Street. Along with it we had excellent discussions of social security, Medicare, and ISDA, including details descriptions of how ISDA changes the rules to suit themselves and the CDS market, acting as a kind of independent system of law, which in particular means it’s not accountable to other rules of law.

Going back to our discussion on Medicare, I have a few comments and a questions for my dear readers:

I’ve been told by someone who should know that the projected “skyrocketing medical costs” which we hear so much about from politicians are based on a “cost per day in the hospital” number, i.e. as that index goes up, we assume medical costs will go up in tandem.

There’s a very good reason to consider this a biased proxy for medical costs, however. Namely, lots of things that used to be in-patient procedures (think gallbladder operations, which used to require a huge operation and many days of ICU care) are not out-patient procedures, so they don’t require a full day in the hospital.

This is increasingly true for various procedures – what used to take many days in the hospital recovering now takes fewer (or they kick you out sooner anyway). The result is that, on average, you only get to stay a whole day in the hospital if something’s majorly wrong with you, so yes the costs there are much higher. Thus the biased proxy.

A better index of cost would be: the cost of the average person’s medical expenses per year.

First question: Is this indeed how people calculate projected medical costs? It’s surprisingly hard to find a reference. That’s a bad sign. I’d really love a reference.

Next, I have a separate pet theory on why we are so willing to believe whatever we’re told about medical costs.

I’ve been planning for months to write a venty post about medical bills and HMO insurance paper mix-ups. Specifically, it’s my opinion that the system is intentionally complicated so that people will end up paying stuff they shouldn’t just because they can’t figure out who to appeal to.

Note that even the idea of appealing to authority for a medical bill presumes that you’ve had a good education and experience dealing with formality. As a former customer service representative at a financial risk software company, I’m definitely qualified, but I can’t believe that the average person in this country isn’t overwhelmed by the prospect. It’s outrageous.

Part of this fear and anxiety stems from the fact that the numbers on the insurance claims are so inflated – $1200 to be seen for a dislocated finger being put into a splint, things like that. Why does that happen? I’m not sure, but I believe those are fake numbers that nobody actually pays, or at least nobody with insurance.

Second question: Why are the numbers on insurance claims so inflated? Who pays those actual numbers?

On to my theory: by extension of the above byzantine system of insurance claims and inflated prices for everything, we’re essentially primed for the line coming from politicians, who themselves (of course) lean on experts who “have studied this,” that health care costs are skyrocketing and that we can’t possibly allow “entitlements” to continue to grow the way they have been. A couple of comments:

  • As was pointed out here (hat tip Deb), the fact that the numbers are already inflated so much, especially in comparison to other countries, should mean that they will tend to go down in the future, not up, as people travel away from our country to pay less. This is of course already happening.
  • Even so, psychologically, we are ready for those numbers to say anything at all. $120,000 for a splint? Ok, sounds good, I hope I’m covered.
  • Next, it’s certainly true that with technological advances come expensive techniques, especially for end-of-life and neonatal procedures. But on the other hand technology is also making normal, mid-life procedures (gallbladders removal) much cheaper.
  • I would love to see a few histograms on this data, based on age of patient or prevalence of problem.
  • I’d guess such histograms would show us the following: the overall costs structure is becoming much more fat-tailed, as the uncommon but expensive procedures are being used, but the mean costs could easily be going down, or could be projected to go down once more doctors and hospitals have invested in these technologies. Of course I have no idea if this is true.

Third question: Anyone know where such data can be found so I can draw me some histograms?

Final notes:

  • The baby boomers are a large group, and they’re retiring and getting sick. But they’re not 10 times bigger than other generations, and the “exponential growth” we’ve been hearing about doesn’t get explained by this alone.
  • Assume for a moment that medical costs are rising but not skyrocketing, which is my guess. Why would people (read: politicians) be so eager to exaggerate this?

One thought on “Are healthcare costs really skyrocketing?

  1. Fear.
    There are all sorts of social engineering. Could the Health Care Reform Bill have been possible without a managed campaign of medical-bill-terrorism over the preceding decade? I don’t think so, though I am happy to be corrected.
    [This is the first time I've visited your site, by way of Jesse, but I get the impression you are a thoughtful observer. Just be aware I am shooting from the hip here, due to lack of time.]
    The endgame is what we now have, or can see coming from here. Big Vaccine indemnified from its own lethal negligence. Mandated insurance expenditures which unconstitutional on its face. Government overseeing medical resource deployment, the so-called death panels, a sort of soft eugenics.
    I haven’t read your archive so this might not apply to you, but it does apply to your bent for careful analysis. But one place where Jesse, whom I greatly admire, falls down is he carefully analyses policies and effects out to the place where the raging dissonance is apparent and the dysfunction made manifest, and then simply calls it a failed, wrongheaded policy. He doesn’t entertain the idea that that which has been created in all its destructive splendor WAS THE POINT.
    The psychological scam here is 1.) they say they doing one thing ( a good you can agree with); 2.) their initiatives are entirely wrongheaded and incongruent with that stated aim; 3.) we see disaster coming; 4.) it comes; (and here’s the psychological part;) 5.) we wag our heads in a weird, ruefully self-satisfied, “I told you so. Congress is so DUMB!” way. Our hubris blocks us from seeing the policy was a complete success for the Elite, but that WE fell for the idea Congress was pursuing “a good we can agree with.” They never were.
    Good luck with your site.

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