Why High Gas Prices and High Medical Costs Are Related
1/30/2006 07:32:00 PM | Author: baloghblog
Reviewing the latest released topics on the President's State of the Union Address, I see that Bush is going to focus on both the topic of high energy costs and the high cost of healthcare. From Fox:
During his Tuesday address, the president also will talk about health care, energy, education and the economy, with particular attention on the costs of energy and medical care for Americans.
This got me thinking: why do the costs of health care and energy continue to spiral out of control? Are the reasons behind the increase related? Many of the causes are not. The price of gasoline is driven by demand - which has continued to grow despite increases in cost. Health care costs on the other hand are driven by technological and pharmaceutical advances which cost tremendous amounts of investment to develop, and this cost is passed on to the user.

The way that I believe that these pressing issues are related is in the solution, rather than the causes. Both require a reduction in use to reduce the growth in price. How can we expect health care costs to decline, when we will continue to demand the latest advances in technology and the latest pharmaceutical agents in order to address our ailments? How can we expect the cost of gasoline to moderate, when we continue to drive the amount that we do, and continue to expand the exurbs and new non-walkable community developments?

Discretion in the use of expensive CT or MRI scans would save millions of dollars a year. At a cost of $500 to $2000 per scan, this is an expensive but very helpful tool in a physician's arsenal in fighting many diseases and determining appropriate courses of treatment. Many times however, a MRI is used to confirm diagnoses that doctors have made, and have no bearing on treatment or outcomes. Patients readily accept CT scans and MRIs, because it can provide a detailed view inside the body and provide the physician with a tremendous amount of information. Another reason that patients ask for these scans is that insurance in most cases will pick up most if not all of the cost. For example, a patient lucky enough to have the insurance I carry will be able to obtain a CT scan at no out of pocket cost, as long as they go to the designated radiology center. At no out of pocket cost, one thinks, "I have paid so much into my insurance plan through work, I deserve to have this test." And rightly so, this is the basis of insurance, one pays a monthly fee in order to defend against future or unexpected medical expenses. Very few patients would pose this question to their physician, "will having this test change the outcome of my condition, or be used in determining the course of my treatment?" Therefore, the test is ordered, the results come in, and both parties feel that they have made the correct decision.

However, from a 2004 report from
Pennsylvania Health Care Cost Containment Council:
Studies have found overuse of diagnostic imaging and duplication of other types of scans that add little or no value. One NIA audit concluded that 30 to 40% of diagnostic imaging is inappropriate or, at best, noncontributory - i.e. its use did not help to make a diagnosis or treatment decision. In particular, CT and MRI are frequently used in an inappropriate or noncontributory manner, the NIA found.
(emphasis mine)

The cost of diagnostic imaging is growing at a rate more than twice the cost of general medical costs (same report):
While a significant technological advance, diagnostic imaging is also the fastest growing medical expenditure in the United States, with an annual 9% growth rate - more than twice that of general medical expenditures (4.1%) according to the American College of Radiology Web site (May 2004). The cost of diagnostic imaging is projected to increase 28% between 2000 and 2005 to nearly $100 billion annually, according to a Booz Allen Hamilton analysis.
According to CMS the total health care cost for 2004 was $1.9 trillion. This means that diagnostic imaging represents 5% of the total health care cost in this country. If even as few as 1/5 of MRI, CT and PET scans were non-contributory, this would still provide a reduction of total medical expenses by $20 billion dollars, and would reduce the total health care cost by 1%. Remember, according to the NIA audit, the number may be as high as 30-40% of tests.

Now, the rub. Ask yourself, would I forgo a medical test that would provide me piece of mind and rule out disease, or to confirm a medical diagnosis? Even if the test would have no bearing on my treatment, and provide no out of pocket cost? Doctors should be asking themselves whether particular testing is appropriate, or contribute to their patient's well being - rather than thinking that another CT scan would bring in more money to the group or hospital's coffers.

We need smart medicine going forward as part of the solution to the health care crisis.

Now back to my original thought, how does this relate to the rising cost of energy? Once again, the solution requires a reduction in use to reduce the overall cost to our nation. Do you want to know a great way to reduce your family's monthly gasoline cost by nearly 15%?

Don't drive one day a week. Carpool to work, take the bus, drive smartly and consolidate errands. Eliminate non-necessary trips in the car. Do it for just 1 day a week, and your gasoline bills will be cut by 1/7th. If up to 30-40% of all MRI's are not appropriate or non-contributory, how many trips in the car do you think are non-contributory or unnecessary?

Instead of focusing on ethanol, hydrogen, and other alternative fuels, the government should be providing leadership and direction in the conservation of fuel which would reduce the need for oil imports many times over the reduction caused by alternative fuel use.

Conservation of energy also has another valuable effect, decreased demand reduces the cost of the energy on the open market.

Eliminating both unnecessary medical procedures and excess usage of vehicles as a way to reduce the rising price of energy and health care is a "bitter pill" to swallow. Public attitude is difficult to change, especially when asked to "sacrifice" something that people are used to having. I don't expect the President to come out and say that we drive too much and that we over utilize medicine. I just wish that he would come out and say that we need to utilize both more efficiently - to work towards the outcome that we would all like to see: more money in our pockets, and less money given to big pharma, big insurance and big oil.

Footnotes: great smiling japanese MRI cartoon borrowed from HERE
edited by Mrs. baloghblog

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On 10:57 PM , Mark Brandon said...

I think a more apt comparison to skyrocketing medical bills is skyrocketing higher education bills. Gasoline is a commodity which is undifferentiated to the point that there is a spot market. Price is driven by supply and demand.

Both health care and education are skyrocketing because they are partially socialized. It needs to be either entirely socialized, or not socialized at all.

In both cases, there is a third party payer (the federal government or insurance companies) which is picking up most of the tab, making the service available to millions of people who previously had no access. The users have no incentive to be cost-conscious, so the institutions raise prices at will. Partial socialization just transfers the pain. In both cases, the poor were unable to afford medical care and higher ed before. Now, it is the low-wage working poor that falls through the cracks. For higher ed, they are too rich for financial aid, too poor to afford tuition. For medical, they are too rich for medicaid, too poor for health insurance.

Mark Brandon
Sustainable Log - News and Views for Socially Responsible Investors
When you subscribe to Sustainable Log, we give $1 to Alternative Gifts International in support of a cause of your choice.

On 7:21 PM , RomeHater said...

Another problem is the reason insurance companies pay almost 100% of the cost of an imaging test. Even the best doctor's judgement can be questioned in a lawsuit.

An insurance company figures that 1,000 CT scans are cheaper than a $10 million lawsuit for malpractice, even where none exists. Actally, health savings accounts would be a good solution, since it makes patients aware of their costs.

I would like a univeral 10/100 plan. Anything under $100 (Doctor's visits, medicine, tests) would be out of pocket. Anything over $10,000 (surgery, chemo, physical therapy) would be completely covered by a catostrophic government plan. Everything else would be based on the supplimental insurance you buy.

High gas prices keep people from driving as much. I'd love to carpool to my 20 mile away job, but there's no one to carpool with. Maybe when gas is $5 a gallon.

On 1:46 PM , UNplanner said...

I agree with Mark. The healthcare analogy to higher education is better than to gas. We have left oil production/consumption largely to the vagaries of the market. Sure government is involved, but it is not a driving force in pricing (at least not in reducing costs anyway).

Health coverage is truly a bastardized arrangement between the free market and government social policy. The introduction of 3rd party payment options removed what little economic decisionmaking by the consumer when making healthcare decisions. We have a huge range of choices available to us but for the most part are divorced from the knowledge of the true costs of it.

(on a side note, try and imagine what gas pricing and purchasing would be like if we paid for fuel with a monthly Gas insurance premium and service station Co-Pays.)

What Oil and healthcare DO have in common is an incredibly inflexible demand schedule. We are highly dependent on both and as long as both are available (oil physically and healthcare by law in the form of ER visits) it will be used no matter how much it will cost.

The hard truth about health care is when it comes to making decisions, people will almost certainly err on the side of caution and try anything to get/stay healthy. Basic survival instinct here. As a result, care has to be rationed. Some countries do that across the board with completely socialized medicine. Others let the market ration out the care solely to those who can pay. We give our care away to certain segments of the population (elderly, the very destitute) and let the market sort out who gets what for the rest.

All things being equal, i'd rather see health care being rationed to all in an equitable manner like parts of Europe or Canada. Is their system better? No, but it is a more socially just way of doing it than we do it here.

Plus, they don't waste hundreds of billions of dollars in administrative overhead either.