CBO Crisis Mongering

The CBO has just released a report on health care spending which projects that excess cost growth (the percentage by which health care spending will exceed GDP growth) will consume unsustainable percentages of our national income during the coming decades.

However, The Long-Term Outlook for Health Care Spending ignores important data to reach this conclusion. Excess cost growth from 1990 to 2005 was 1.5%, which is about 42% less than the 2.6% annual average that prevailed during the previous 15 years. In other words, excess cost growth is declining.

So, how did the folks at the CBO produce such dire projections? They arbitrarily decided to include the 1975 to 1990 excess cost growth figures in their average. In other words, their projections assume a growth rate that far exceeds actual experience for the last decade and a half.

This statistical skullduggery is what allowed the CBO to produce a much bleaker spending projection than did the Medicare Trustees. The latter group projects a trajectory for excess cost growth that is much more in line with what has actually been happening since 1990.

Naturally, the usual suspects are claiming that the CBO report confirms the need for drastic reform (i.e. more government meddling in the health care market). More proof that Disraeli was right.

Obviously, increases in health care spending need to be controlled as much as possible. However, exaggerating the the problem with statistical manipulation does not help the cause.

Comments 3

  1. spike wrote:

    I think this might be the best post you’ve ever written. It’s actually informative.

    Posted 17 Nov 2007 at 8:13 am
  2. drmatt wrote:

    exaggerations and statistical manipulation? isn’t that what you do on this blog every day to support your arguments? Though, I totally agree, we go no where with health care until “we” stop doing that.

    Posted 20 Nov 2007 at 12:00 pm
  3. jk wrote:

    Disraeli would look askance at your own number noodling — the 1990-2005 figures you want us to use are skewed by the few good years in the 1990s when HMOs and “managed care” actually were slowing costs. Then the backlash occurred (patients saying: “don’t tell me I can’t have unnecessary care or go to the ER for a cold” and doctors saying “beancounters are telling me I can’t order an unnecessary procedure!?), and now we have plans with the $20 copay that was predicated on strict care management, but without the care management. We’re back to essentially first dollar coverage and no risk for either patient or, more importantly, provider.

    Another change that has allowed costs to skyrocket again is the “deregulation? of capital investments through the erosion of Certificate of Need laws. Point in fact: specialty hospitals, diagnostic imaging facilities and other new health businesses (many owned by physicians) in many states don’t require a CON to establish need and cost benefit, and they are financially killing us.

    I know this site loves consumer driven health care (CDHC), but the fact is this: health care is the only part of our lives where the suppliers dictate the demand. No matter what the financial risk, consumers are just not prepared to argue with a doctor that they don’t need this or that test, or to say that waiting it out is a better choice than having something done now (in that new orthopedic hospital that the doctor owns). Even if the influence of CDHC could stop a million 500 dollar decisions, the impact would be a few drops in the bucket of wasted expenditures on health care. Even a million 1000 dollar decisions barely moves the needle. (In 2004, the US spent 1.9 trillion on health care, 16% of GDP. You really think individual consumers are going to rein in a beast that big?)

    Case in point: Vermont, where I live, has, I believe, the highest penetration of HSA plans in the small business market of any state. And yet, the number one outpatient procedure in our state is now colonoscopy. Our state, with a population of only 650,000, spent $16 million on colonoscopies in 2005. This is because we are all being urged to take better care of ourselves, invest in prevention and follow doctor’s orders. We did. And we spent, on average, around $1800 per procedure. We have no idea whatsoever how many of those were “medically necessary,? or even fit the protocols for preventive screening. Who’s going to say “no? when everyone from your doctor to the Surgeon General says: do it.

    And, like the rest of the US, we have wild variations in hospitalization rates, from a high of 109 hospitalizations/1000 residents in Rutland, Vermont, to a low of 73 hospitalizations/1000 in Morrisville, VT. If Rutland’s rate were the same as Morrisville’s rate, Vermont would have spent $19 million less on hospital stays in one year. To put that in perspective, that’s about half the cost of the insurance plan for all the employees of all the cities and towns in Vermont.

    So, let’s go the facts: international studies show that the reason our health care system costs more than other countries is that we pay doctors and nurses more. Wennberg and Fishers studies show that we are keeping all those doctors and nurses busy by building too much health care delivery capacity than we really need and delivering services to people who don’t need them. It’s all about saying no, something that isn’t part of the American character, neither on the Left nor the Right. (Remember managed care?)

    Posted 30 Nov 2007 at 12:57 pm

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